Genesis Comments on Crypto Correlation as Markets Stumble

Noelle Acheson, Head of Market Insights at Genesis, has distributed some perspective on why crypto correlations spike during times of “uncertainty.”

Markets have been in a tumble – both crypto and traditional markets have retrenched as fears of a looming recession along with Giga high inflation and rising interest rates compel investors to reset expectations.  Acheson states that crypto assets are being lumped together in the same group by macro investors.

“Earlier this year the 60-day correlation between Bitcoin and an index of leading crypto assets, ex-stablecoins, and ex-Bitcoin, reached its highest point since early 2020, as macro investors treated all crypto assets as “risk” investments. The week of May 11th saw a sharp plummet in this metric, as LUNA (until then a top-10 asset by market cap) effectively went to 0. Since then, however, it has rapidly rebounded and has been increasing since, hovering around 0.90,” reports Acheson. “However, Bitcoin is cementing its role as the “blue chip.” Bitcoin tends to underperform in strong markets and outperform in weak markets. When markets are nervous, we see crypto investors rotate into the relatively “safe” and liquid assets, which pushes up Bitcoin’s market cap dominance. This metric, which measures the overall market weight of Bitcoin’s market cap, jumped during the recent market turbulence and broke through 45% late last week for the first time since the ETF-triggered price run of October 2021.”

She adds that the ETH/BTC ratio dropped during the turbulence and has not yet begun to recover. She prescribes this to signaling a preference for “safety” in crypto markets in spite of a possible upside from the Ethereum Merge.

“So, in times of high market uncertainty, crypto correlations tend to spike as they are treated as a relatively homogeneous asset class. However, distinctions within the asset group also come to the fore as relative “safety” earns a premium.”

Meanwhile, Bitcoin is struggling to claw its way above $30,000 – far off its all-time high. Yesterday, Guggenheim Chief Investment Officer Scott Minerd predicted that Bitcoin could dive to $8,000 – a move that would represent a loss of around 70% of its current value.

Unfortunately, volatility continues to be the norm and times are tough with no light at the end of the tunnel.


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