Q1 hasn’t been easy for investors. In fact, the stock market had one of its worst starts to a year in history, rivaled by the GFC and great depression. Of course, Bitcoin[1] as a high beta asset hasn’t been immune to the drop in stocks, falling over 13% (at the time of writing) from three months ago. In last quarter’s outlook I focused on the headwinds bitcoin was likely to face given the developing negative macroeconomic conditions. This has largely played out, but unfortunately is not over.
As we look ahead to what is in store for crypto markets in Q2, I still believe that “macro matters” in the sense that tighter financial conditions and slowing economic growth are serious headwinds. The de-leveraging and liquidity draining impact of the Fed’s policy shift will likely cap any serious rise in crypto prices, but in the face of that, there are a few fundamental and regulatory points for long term investors to be excited about. Mainly, a pro-crypto executive order from President Biden’s desk and continued signs of growth across the Bitcoin network.
Here is an updated view on the current macro setup and its potential implications on crypto.
Bitcoin Relative Price Performance (3-Month)
Source: Koyfin
On the surface, bitcoin has underperformed against assets from commodities and gold[2] to tech stocks and even bonds (which have been a disaster). This should come as no surprise as bitcoin remains positively correlated to equity risk and stocks broadly have exhibited poor performance.
BTC/SPY 21-DAY ROLLING CORRELATION
Source: Koyfin
Now, it’s possible this relationship breaks down and bitcoin trades independent of equities, it’s just difficult to argue the souring macro backdrop and monetary policy impacting stocks, doesn’t weigh on bitcoin too. This is evident when looking at
