Decoupling to the Downside?
By this point, almost everybody on the market is drawing parallels between crypto and the stock market. The consensus among crypto enthusiasts is that crypto will start outperforming other asset classes at some point.
Lately, there have been discussions about the opposite. Stocks remain strong, while $BTC shows weakness. This pushes the market’s sentiment down.
Is it that bad, though? Let’s zoom out and compare $BTC with $QQQ, the staple index for tech stocks. As you can see, the correlation between the two is relatively high. However, it doesn’t mean that they move in unison.
$QQQ (blue) and $BTC. Sources: Yahoo Finance, CoinGecko.
So, it’s too early to talk about a decoupling. The question then is: “can crypto eventually decouple from stocks to the downside?” And, in my opinion, the answer is most probably yes.
At SIMETRI, we always considered crypto as a risk-on asset class. So, when institutions allocate their capital, they might put a fraction of it into crypto. Generally, it’s up to 5%. They don’t put more because crypto is on the higher end of the risk spectrum.
$AAPL is a speculative asset just like $BTC. Yet, it’s safer to hold the former, especially when the macroeconomic conditions are poor. Apple has a sustainable business, and Bitcoin has just the narrative and miners.
If the market conditions worsen, very risky assets will be the first to be sold as market participants flee to safe havens. This may put more pressure on crypto than on stocks.
Currently, the market suffers from high uncertainty. Still, it’s not doomed, as there’s a chance that the Fed will have a soft landing and escape a recession. Hence, a potential decoupling may create lucrative opportunities for an average investor, but it’s not guaranteed.
Overall, dollar cost averaging wins over speculations about the relative performance of asset classes. If decoupling happens, it will let you buy more tokens for the same amount of money. If not, the market probably goes back into the growth mode, and you’re prepared for it.
SIMETRI Portfolio: No Change
Not much has changed in the Portfolio since the past week. That’s because $BTC has been mostly flat.
