“Bitcoin’s correlation to equities is higher than normal and its correlation to gold is lower than normal.” – 03:03
Andy Baehr, Head of Product at Coindesk Indices, joins Remy Blaire at the New York Stock Exchange to discuss the recent upheaval in the cryptocurrency market, triggered by rising U.S.-China trade tensions. The discussion begins with a significant sell-off in Bitcoin and altcoins that occurred last Friday, resulting in over $19 billion in leveraged crypto bets being liquidated within a 24-hour period. This event affects approximately 1.6 million traders, although the actual number may be even higher. Remy highlights the unique operational challenges of the crypto market, such as limited liquidity and a rush of traders attempting to exit, which intensified the selling pressure and led to rapid declines in coin prices across various trading platforms.
Andy shares his recent experiences from a trip across six cities in four countries in Europe, where he engaged with a diverse array of investors, including long-term investors, family offices, and asset managers. He notes that the investment case for Bitcoin is becoming increasingly solidified, with many investors already allocating a portion of Bitcoin into their portfolios. The conversation also touches on the growing interest in stablecoins and tokenization, as investors seek to understand how Layer 1 blockchains like Ethereum and Solana can enhance their investment strategies.
Remy and Andy discuss the differences in the crypto landscape between Western Europe and the UK. While most of Europe has had exchange-traded products (ETPs) for years, UK retail investors have only recently gained the opportunity to invest in Bitcoin and Ether ETPs following the lifting of a ban. This timing, coinciding with the recent market sell-off, could present a unique entry point for UK investors looking to add these assets to their portfolios.
As they analyze the market action from last Friday, they note that Bitcoin’s correlation to equities has increased, while its correlation to gold has decreased. This shift raises concerns for Bitcoin, as it has been following equities down as a risk asset. The unexpected decline in the equity market contributes to the fragility of the crypto market, leading to the significant liquidation event. Despite the chaos, Andy points out that the market managed to recover somewhat, although the $20 billion in liquidations has left it feeling precarious.
Remy and Andy discuss the lessons learned from this liquidation event, emphasizing that such occurrences are not uncommon in both equities and crypto markets. After a period of positive news and adoption, the market can experience pullbacks, which may present buying opportunities for those willing to take the risk. Currently, Bitcoin is hovering around $110,000, down from its recent all-time high of $126,000, while Ether and other Layer 1s have seen a 20% decline. Andy advises listeners to prepare for potential volatility in the coming weeks and highlights the need for a new catalyst to restore positive momentum in the market.