Crypto Showing Itself to Be An Uncorrelated Asset

Crypto Steady as Equities Taken to the Cleaners; That is Good For Crypto

The recent sell of in the stock market hasn’t had any significant impact on crypto prices. This is one bit of evidence that crypto may be an uncorrelated asset.

Meaning, crypto isn’t necessarily going to go up or down depending on what stocks do, instead it is moving on its own terms.

This doesn’t mean this is the way it’ll be forever, it only means that this is the way it is right now. Thus, it is one bit of data that can be compared to other data as time moves on.

As a crypto investor you would generally want crypto to be uncorrelated. Here are some reasons why:

  • You don’t want it to have an inverse relationship, because aside from a few odd chunks of time, equities are generally a bull market (see for example a 100 year chart of the Dow Jones). Thus, crypto would spend most of its time down if it only rallied when stocks fell (sort of like gold, see gold’s 100 year).
  • You don’t want crypto to move with the equities markets, because it would suggest crypto doesn’t have its own identity and was instead simply another widget for traders to toss around in a bull market. We don’t want to just be a speculative widget, we want to be a serious asset class.
  • You would want crypto to be uncorrelated, because you can then allocate funds to crypto on its own merit, considering only crypto charts in your decision making, and potentially having a space to invest/trade in when you didn’t want to be in equities.

Ultimately, pros and cons aside, it is simply encouraging to see crypto hold steady and not react to the global equity market panic. It helps to show that crypto is its own asset class dependent only on itself and subject to no other asset classes’ coattails.

NOTE: In the past, specifically in January and April, crypto appeared to be correlated with the US stock market to some degree, and throughout 2018 it has appeared to be correlated with Emerging Markets (i.e., a 10 month long blood bath). However, in this spurt it seems not to be correlated with any other asset class. It could be that the space is maturing, it could be that the past action was coincidental, or it could be something else. There is no way to know exactly what is up, all we can do is watch and gather data over time.

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...

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