Stocks and crypto are in the early phases of detaching once again. For the majority of the time, the crypto market moves in sync with the NASDAQ. Once again, in response to increased interest rates, the crypto market has begun to steer in a different direction than the stock market.
What is ‘the Decoupling’?
The decoupling has been spoken about in crypto for years as if it were an ancient prophecy. The cryptocurrency market is believed to follow a similar trajectory to that of the NASDAQ, and although it is sometimes more volatile and subject to higher or lower swings, it relatively traces the same path. The decoupling is the term used when describing a separation from the same reactive patterns stocks are subject to, and instead moving in context to real events and developments that only directly affect the market. Once the crypto market acts as its own independent entity, the decoupling will be confirmed.
Expectation vs. Reality
While predicted to be a monstrous bull run that would send multiple coins to the moon, the decoupling over the past few weeks has been anything but that. Opposite to the way in which it was predicted to happen, the crypto market has branched off from stocks in a slow, downward spiral. While stocks are often perceived as being boring in comparison to the excitement and astronomical gains inside the crypto market, the tables have turned somewhat with crypto holders even turning to NFT trading simply for the activity on the market. Ironically, conditions are only expected to worsen inside the crypto market, with almost all coins except Bitcoin and Ethereum falling around 90% from their all time high, and large profits being taken out during each small rally attempt to keep above the $28K Bitcoin price.
Short term trend or real decoupling?
This data is only short term and related to the past 4 to 5 weeks, yet the decorrelation is quite visible, especially in alt coins. Bitcoin dominance over the crypto market has climbed to 48%, which signals that the market is currently more risky than traditional markets as liquidity is bleeding out from alt coins back to Bitcoin and Ethereum.
It would be far too soon to call this a real decoupling of crypto, as there is no long term data. Rather than price action showing stability, crypto has regressed and become further reactive to global events (such as the Fed’s decisions over the past 6 months almost single handedly guiding the market downhill). The reality is, until crypto becomes sustainable, there’s no legitimate reason for crypto to decouple from stocks.