Do you want to know where the crypto market goes from here? Investors should look no further than the stock market, Barry Silbert, a strong player in the digital asset sector, says in a tweet Sunday night amid a downturn in digital assets.
Silbert’s comments came as BTCUSD,
and alternative assets like dogecoin DOGEUSD,
It was in the midst of a turbulent trading weekend that saw all of these cryptocurrencies shed at least 50% of the recent highs in their peers on Sunday.
We see: Bitcoin Price Drops 50% From Peak Mark Cuban Calls Crypto Crash A ‘Great Relaxation’
CoinDesk reports that some of the turmoil in digital assets is linked to China’s crackdown on the sector. Specifically, the crypto-focused website reported that crypto exchange Huobi may scale back some of its offerings and suspend some mining hosting services in some countries due to the Chinese government’s tough stance on virtual currencies.
Read: Why hang encryption? Will bitcoin prices ever recover? This is what traders and investors say
However, a number of market participants attempted to point out that the recent slump in cryptocurrency had nothing to do with the fundamentals of digital assets, or the changing regulatory and narrative landscape, and more to do with Wall Street’s appetite for speculation.
In this case, Silbert suggests that stocks may be the main indicator of how much risk investors can take in cryptocurrencies, not the other way around.
Last Sunday, Mott Capital’s Michael Kramer said in a blog that the recent bitcoin crash may signal that risk appetite on Wall Street is in transition — presumably in a downtrend.
Silbert is a shining star in the world of digital assets, having founded two of the most famous companies in the crypto space: Grayscale Investments, which operates the popular Grayscale Bitcoin Trust GBTC,
And the cryptocurrency group that also owns CoinDesk. He has also been an early investor in companies such as the Coinbase Global COIN trading platform,
and Ripple, the blockchain-focused startup behind the XRP cryptocurrency XRPUSD,
CoinTelegraph has ranked Silbert as the 5th most important person in decentralized digital assets.
He also knows a thing or two about stocks: Second Market, a popular private equity trading exchange he founded in 2004, was sold to Nasdaq Inc. NDAQ,
in 2015 for an undisclosed amount.
His view that stocks may affect cryptocurrencies may have more to do with the amount of money borrowed in stocks, and how institutions that have recently invested in bitcoin are reacting to this current recession.
Sister publishing house Barron’s MarketWatch reports that Tesla Inc.’s TSLA.
Bitcoin holdings are very likely below where the electric car maker bought its $1.5 billion position.
Based on average prices, Tesla will likely have around 42,000 bitcoins at the end of the first quarter. With recent price moves, the company will likely be looking to lose nearly $125 million, Barron’s Al Root reports.
“If so, the impairment loss will be recognized in the electric car maker’s upcoming second-quarter earnings report, unless prices recover,” he wrote.
Stocks and cryptocurrencies aren’t supposed to be correlated, but some have pointed out that tech stocks have apparently been reacting to crypto-related news lately. Market participants noted the short-term correlations between the Nasdaq 100 NQ00 futures contracts,
On the last check, Dow Jones Industrial Average YM00 futures contract,
S&P 500 ES00 Index,
The Nasdaq 100 NQM21
It was up on Sunday night.
Longer term, correlations between stocks and the Dow Jones Industrial Average (DJIA),
S&P 500 SPX Index,
and Nasdaq Compound,
(or Nasdaq-100) doesn’t sound obvious. Based on the 20-day trading correlation between the Nasdaq 100 and Bitcoin, for example, the correlation holds at 0.19.
Correlation 1 means the two are completely synchronized, 0 means no correlation, and -1 means the two go in the opposite direction. The relationship between the Nasdaq 100 and Bitcoin was significantly higher at the beginning of 2021, at around 0.64 in mid-January.
As institutional involvement in crypto increases, the two assets could begin to show greater connections. A report by JPMorgan Chase last week called for a shift by institutional investors outside of bitcoin into the GC00 gold futures contract,