• Crypto prices have surged in recent months, proving that the narrative of crypto being uncorrelated to other asset classes is false.
• This rally follows the pandemic and central bank’s response of low interest rates and stimulus packages.
• The price action of crypto through the pandemic and rate-raising cycle shows that it is an extremely risky asset class that moves in line with other speculative asset classes.
The world of cryptocurrency has been buzzing in recent weeks as prices continue to surge and reach their highest levels since the COVID-19 pandemic began. This rally has been driven by expectations that interest rates may be cut sooner than anticipated and has proven the narrative that crypto is uncorrelated to other asset classes to be false.
The pandemic caused a significant shock to the global economy, leading to the shutdown of businesses and economies around the world. To combat this, central banks across the world adopted ultra-low interest rate policies and implemented stimulus packages of an unprecedented scale. This influx of liquidity into the market resulted in a surge in the price of digital assets, as investors flocked to them in search of quick gains.
However, this price action is not only happening in the crypto space. Through the pandemic and subsequent rate-raising cycle, the price action of crypto has been extremely risky and has moved in line with other speculative asset classes. This shows that, contrary to popular belief, crypto is not an uncorrelated asset, but rather a speculative one that is influenced by market sentiment.
Furthermore, with the rise of decentralized finance (DeFi) and the introduction of new protocols, the crypto market is becoming more sophisticated and is thus becoming more susceptible to the same market forces that influence other asset classes. This further proves that crypto is a speculative asset, rather than a safe-haven asset, and that investors should be cautious when investing in it.
All in all, the recent surge in crypto prices has proven that the narrative of crypto being an uncorrelated asset is false. The price action of crypto through the pandemic and subsequent rate-raising cycle shows that it is an extremely risky asset class that moves in line with other speculative asset classes. Therefore, investors should be aware of the risks involved when investing in crypto and should approach it with caution.