- Bitcoin’s growing susceptibility to macro events was on full display this weekend as it fell far more sharply compared with altcoins.
- Because more institutional investors are involved with bitcoin now than at any other point in history, the odds are that bitcoin will be more susceptible to macro shifts is a given, and with it, its portfolio balancing ability, especially during times of general uncertainty and volatility.
In a sharp reversal for bitcoin bulls who have long been comforted by bitcoin’s track record of moving far more quickly than the so-called altcoins (anything else that isn’t bitcoin), the altcoins are being less affected by macro events and charting their own path.
Bitcoin has long been touted as adding value to a portfolio thanks in large part to its lack of correlation with other asset classes, including stocks, bonds and commodities.
But that assumption has come under challenge of late as growing interest and investment in bitcoin has seen it taken on the same levels of volatility and exposure to macro trends as other asset classes.
Bitcoin’s growing susceptibility to macro events was on full display this weekend as it fell far more sharply compared with altcoins.
Even though the sharp correction in bitcoin on Saturday, where the benchmark cryptocurrency fell by over 20%, could be in large part attributed to cascading deleveraging across the market, it still does little to explain why altcoins like ether, which fell around 17%, saw relatively milder losses.
And despite bitcoin falling below US$50,000 over a tumultuous weekend of trading, ether, which would be expected to fall below the crucial US$4,000 level of support, stayed stubbornly above.
In a note on Sunday, Fundstrat head of digital asset research Sean Farrell said,
“The rest of the crypto market recovers at a much faster pace than bitcoin.”
Farrell cited three events last Friday which may have contributed to bitcoin being affected by macro uncertainty – news on the omicron variant, reaction to potential for an expedited Fed taper and action in the derivatives market.
Because more institutional investors are involved with bitcoin now than at any other point in history, the odds are that bitcoin will be more susceptible to macro shifts is a given, and with it, its portfolio balancing ability, especially during times of general uncertainty and volatility.
Novum Digital Asset Alpha is a digital asset quantitative trading firm.
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