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In a detailed outlook on Twitter, Brett Harrison, CEO of crypto exchange FTX US, tackles a prevailing critique of crypto not being good hedge against inflation or a portfolio diversifier due to its strong correlation with the stock market.
“Every interview I’ve watched (or done) recently includes questions about apparent correlations between stocks and crypto, usually amid discussion of whether crypto is (1) a good inflation hedge, (2) a portfolio diversifier, (3) an independent store of value.”
According to Harrison, the same big players involved in equities are also operating in the crypto markets, thereby making both asset classes behave in seemingly similar fashion:
“I think the majority of what we’ve seen with crypto and equity correlations in the last several months comes purely from [extrinsic buy/sell pressure].
Global assets are down, across stocks, bonds, and crypto. Large institutions with allocations across these different asset classes will look for portions of their portfolio to sell off to reduce risk, increase cash balances, cover margin calls, etc
5BTC or 111% + 111 Free Spins!
New players only. Exclusive 111% Welcome Bonus + 111 Free SpinsPut another way, in down markets most correlations go to one. Taking a snapshot of correlations at any given time does not tell the story of the intrinsic value of an asset, nor what its true relationship is or should be to other assets.”
At the time of writing, the S&P 500 and Nasdaq index have lost 3.88% and 4.68% in the last day, while top cryptocurrencies Bitcoin and Ethereum both went down 16% in the same period, according to CoinMarketCap.