The De-Coupling Thesis

Key Insights

• Despite the bleak picture we painted for the broader US economy in the 2022 macro update, there is a case to be made for a bullish outlook on crypto for the back half of the year.
• While inflation likely stabilizes, it does so at a higher level, disrupting the negative correlation for traditional safe-haven assets vis-a-vis equities. New alternatives need to be considered.
• Post-Merge ETH becomes not only an “internet bond” but a new type of hybrid bond with multiple desirable qualities for institutional investors. The narrative of BTC as a better version of gold is further solidified. These narratives will drive flows into crypto as equities suffer.
• Post-Merge BTC and ETH correlation with equity markets will decline with periods of persistent negative correlation as early as Q4 2022.
• It would not be shocking to see the new 60/40 in the coming years be something like 60/30/10 for equities, bonds, and crypto.

Historically, there has been a strong correlation between ETH, BTC, and the broader US stock market (Nasdaq and S&P 500). The correlation averages 40–50% over longer rolling periods and up to 90% in shorter rolling periods, particularly during times of market stress. There are nuances to this correlation depending on market regimes (inflation, interest rates, etc.), but the TLDR is if markets go up, BTC and ETH go up more, and if markets go down, BTC and ETH go down more. For now.