Macro Insights: Bitcoin caught in double sell-off

NOWHERE TO HIDE: All asset classes, bar commodities, have been swept up in a sharp sell off. Risk-aversion spiked as Fed accelerated its inflation-driven interest rate pivot and tightened financial conditions. Bitcoin’s (BTC) fall started earlier (six months), been deeper (-60% from $69,000), significantly worsened by current contagion from the UST stablecoin depeg, but is also the least surprising (10th ‘crash’ of decade). Retail crypto ownership is very high and resilient. But institutional ownership still low and could take advantage of the current crash. This has been raising asset correlations of what is still only a $500 billion asset, or 5% the value of mined gold. 

NEW OWNERSHIP: Global retail ownership of crypto is big, broad, and resilient to volatility, per our retail beat survey. An average 29% invest 31% of their portfolios in the asset. 2nd only to local equities as most owned asset. By contrast US institutional allocations are under 5%. Early adopters like Canada have broader (71% per 2021 KPMG study) but not deep (2% of portfolios) ownership. Open bitcoin futures are a proxy for this growth. Volumes are steadily growing, and the current price crash is a potential key opportunity for under-exposed institutions to step up.

RISING CORRELATION: Bitcoin’s correlation with other asset classes held by institutional investors, like equities, has naturally been on the rise. But this is slow (see chart) and underlying relationship is far from high levels. This still gives Bitcoin important diversification attributes in a portfolio. Current spiking correlations are much higher than this ‘new-normal’ as market stress surges. This is yet another contrarian sentiment indicator that we see adjusting as markets calm.

All data, figures & charts are valid as of 11/05/2022