Source: Adobe/savva_25
The correlation between traditional macro assets and digital assets that has been seen in recent months may soon break, with assets in the decentralized finance (DeFi) space possibly paving the way to the upside, executives at crypto hedge fund Pantera said. Capital in a recent call with investors.
During the call, which took place on February 1, Pantera Capital CEO Dan Morehead and the company's co-chief investment officer Joey Krug said they believed the cryptocurrency market was ready to "decouple" from the markets. traditional macro assets, even in the face of an interest rate advantage.
Details of the call were shared in Pantera's latest Blockchain Letter from Wednesday of this week.
According to Krug, history has shown that when traditional macro assets decline, cryptocurrencies tend to be correlated for a period of around 70 days before the correlation starts to break down. “And we believe that, in the coming weeks, cryptocurrencies will essentially decouple from traditional markets and start trading on their own again,” Krug said, before adding a caveat:
"That doesn't guarantee that it won't fall much lower next month, or at any time, but it just means that the odds are really high that the markets are on the edge and recovering relatively quickly."
In February 2021, when BTC was trading around €47,000 after correcting around 20% in a week, Krug predicted that a BTC rally could return “in April, if not sooner.” Since then, the price has skyrocketed to over €63,000 in mid-April before beginning a sharp decline that took BTC below €30,000 in July.
This time around, Krug further explained that he doesn't think digital assets are trading at too high valuations right now, for example, many DeFi assets are trading at P/E multiples of 10 to 40." tech stocks are trading at multiples of 400 to 500x,” Krug said.
Price-to-earnings (P/E) ratio is a metric often used to value stocks and can be found by dividing the market price per share (or token) of a company (or token) by its earnings per share.
“It is my personal opinion that €2200 ETH was probably the bottom,” Krug added.
Pantera CEO Dan Morehead agrees, too, saying that other assets, like stocks and real estate, have cash flows that need to be discounted. "It implies lower prices if the yields are higher," he explained.
However, for cryptocurrencies, Morehead said that it is "like gold" and should be valued differently.
“It can behave very differently than products focused on interest rates. I think ultimately investors will have a choice: They have to invest in something, and if rates go up, blockchain is going to be the most attractive,” Pantera CEO said.
Meanwhile, Bloomberg Intelligence senior commodity analyst Mike McGlone has also highlighted a potential divergence between traditional assets like stocks and cryptocurrencies. Commenting on Twitter today, McGlone said high inflation, as well as tensions around Ukraine and Russia, could provide "a strong foundation" for bitcoin (BTC), ethereum and other digital assets in 2022.
Slightly more bearish, however, was Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, who said in emailed comments yesterday that bitcoin "remains hesitant" and that the recent rally "has been driven mainly by futures, while the spot was sold".
"This suggests that this price increase was driven by speculation or hedging rather than genuine demand," the analyst added.
At 15:45 UTC, BTC was trading at €42, down 017% in the last 4 hours and down 24% on the week. Meanwhile, ETH was trading at €5, down 2988% in a day and down 3% in a week. BTC was almost unchanged in a month, while ETH was down 8%.