Andrew Kang, co-founder of Mechanism, today expressed his thoughts on the correlation between encryption and the stock market, explaining why the correlation between the two will continue to decline in the current bear market. In addition, he also suggested that market bearers should not trade cryptocurrencies, and stocks may be a better choice.
1/ The most common pushback I've heard over the last month against the bull view is concern around equities. Find this to be a weak argument considering
Crypto-Equities correlation is now noise
Data shows that we've dropped to statistically insignificant levels of pre-2020 pic.twitter.com/96PU9tzdCm
— Andrew Kang (@Rewkang) October 4, 2023
Why did crypto and the stock market have a high correlation?
Andrew Kang said on Sexual indicators are considered noise.
The picture below shows the correlation coefficient between Bitcoin and S&P 500 in the past few years. It can be seen that the correlation coefficient once reached more than 0.6 in mid-2022, but currently, Andrew believes that it has fallen to a statistically insignificant level before 2020. .
Andrew thought from the perspective of first principles and summarized 2 reasons why encryption and the stock market were once related:
Crossover Funds (such as Cotue, Tiger) and personal investment portfolios focus on technology stocks and cryptocurrencies, creating related wealth effects and reverse wealth effects.
More and more quantitative traders are entering this field and deploying trading algorithms that enhance correlation.
Andrew Kang Advice: The Air Force recommends trading stocks
However, the opposite situation has emerged in the current market. Cross-sectional and quantitative funds have begun to reduce trading since mid-2020, and the cryptocurrency market has also shown its unique advantages and disadvantages at the end of 2022, making correlation trading unprofitable in 2023. money.
Therefore, Andrew believes that if the above situation does not change, the correlation coefficient between the two markets will continue to decrease. But Andrew also said that if a black swan like Covid occurs again, or the Fed implements yield curve control (YCC), funds will re-enter the market and the correlation coefficient will gradually return to 1.
Finally, Andrew advises market bears not to trade cryptocurrencies and stocks may be a better option.
The reason given is that since September this year, the S&P 500 has fallen by 7%, but Bitcoin has increased by 10%, and some altcoins have risen even higher.
This article Andrew Kang talks about the correlation between encryption and the stock market: It is recommended that the Air Force just trade stocks first appeared on Chain News ABMedia.