Correlation Between Bitcoin and Traditional Markets Might Break This Spring - Pantera
The correlation between traditional macro assets and digital assets that has been seen in recent months could soon break, with what assets in the decentralized finance (DeFi) space possibly leading the way higher, executives at the crypto hedge fund Pantera Capital said in a recent call with investors.
In the call, which took place on February 1, Pantera Capital CEO Dan Morehead and the firm’s co-chief investment officer Joey Krug both said they believe the crypto market is ready to “decouple” from traditional macro assets, even in the face of higher interest rates.
The details from the call were shared in Pantera’s latest Blockchain Letter from Wednesday this week.
According to Krug, history has shown that when traditional macro assets go down, crypto tends to be correlated for a period of about 70 days before the correlation starts to break. “And so we think over the next number of weeks, crypto is basically going to decouple from traditional markets and begin to trade on its own again,” Krug said, before adding a word of caution:
“It doesn't guarantee that it won't go down a lot more next month, or whenever, but it just means the odds are really high that the markets are at an extreme and will bounce back relatively quickly.”
In February 2021, when BTC traded at around USD 47,000 after correcting around 20% in a week, Krug predicted that a BTC rally might be back "by April, if not sooner." Since then, the price rallied to over USD 63,000 in mid-April before starting a strong downturn that brought BTC below USD 30,000 in July.
This time, Krug further explained that he does not believe digital asset are trading at overly high valuations at the moment, with for instance many DeFi assets trading at P/E multiples from 10 to 40.
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