The crypto stock correlation will tighten, but volatility is going to pick up as the Fed ends its easy-money policy. Real Vision’s Raoul Pal says. Since the beginning of 2022, the cryptocurrency market has failed to recover. In spite of an increase in interest in the metaverse and a “gold rush.” Inside the non-fungible token market, which have both encouraged speculation. Although the stock market has plummeted as a result of higher interest rates. This has occurred regardless of the reason.
As Real Vision CEO Raoul Pal predicts, stocks and cryptocurrency will move. Even more in lockstep in the coming months. Particularly as the Federal Reserve ends two years of cheap cash. And ultra-loose monetary policy at the end of this month. Which is particularly significant in the cryptocurrency market. However, as a result of this. There will almost certainly be a considerable increase in volatility in the market.
“In order to characterize everything, including every single sector of the investable universe. Risk curves are utilized, and bitcoin is included in this risk curve. There are instances when there is a connection between the two. And other times when there isn’t. As we’ve seen, when a macro change occurs. Everything has a one-to-one association with that shift. This holds true as well.
So it periodically correlates with the risk curve and decouples from the risk curve. Depending on where we are on the risk curve at any one time. “Pal shared his thoughts at the ARK Invest Big Ideas Summit. Which took place earlier this week in New York, New York. Pal is a partner at ARK Invest.
So far in January, US blue-chip equities have been trending down
So far in January, blue-chip equities in the United States. It have been in a near-unbroken downturn. With the S&P 500 down approximately 9 percent and the tech-heavy. Nasdaq 100 down over 13 percent, respectively. Bitcoin and other cryptocurrencies. Have followed in the footsteps of their predecessors.
Bitcoin has lost over a fifth of its value so far in January, trading at around $35,000. A long cry from the all-time high of around $69,000 reached in November. While 2021’s former superstars such as solana and avalanche. Have lost approximately 40% of their worth of the crypto stock.
Cryptocurrency’s proponents have frequently emphasized the fact. That it may be used to diversify a portfolio. However, when interest rates increase and investors have more assets. Which will provide a reasonable income, this link will begin to deteriorate, according to Pal.
When the economy is in the middle of a cycle. “It tends to be highly disconnected,” he explained. “Growth is fine, central bank policy is loose, and crypto does its own thing.”
According to him, it is the shift in the cycle that will cause the correlation to shift. And market volatility is nothing more than a reflection of the movement in the narrative, he explained.
“The storyline revolved around the shift in inflation. Inflation wiped out. Both marginal spending and marginal investing in the economy. And I believe we’ve seen it in joke stocks. We’ve seen it across the market, we’ve seen it in cryptocurrencies. And I believe it will continue to be seen “he explained.
Consumption inflation is at its highest since 1982, and growth is surging
Due to the highest levels of consumer inflation seen in nearly four decades. As well as the fastest growth in four decades in the fourth quarter. It has become necessary for the Federal Reserve. To move from trying to stimulate the economy. Towards attempting to prevent it from overheating.
Following the Federal Reserve’s most recent policy meeting on Wednesday. The markets are bracing for at least five rate hikes this year, according to Bloomberg. Pal, on the other hand, is less hawkish.
His prediction is that central banks will be “more dovish than people assume moving forward.” Which would lead to a longer cycle with more tailwinds, according to him.
Despite some resurgence in the latter stages of 2021, the economy is still struggling. And it may be several years before the full impact. Of the coronavirus-driven recession becomes apparent. Typically, after a recession, growth picks up speed fast, but then begins to plateau. Which can be unsettling for investors. But does not always imply the onset of another severe recession of the crypto stock.
According to him, “that’s quite typical of every recession I’ve ever witnessed.”