The correlation between traditional macro assets and digital assets that has been seen in recent months may soon fade, and assets in the decentralized finance (DeFi) space could set the tone, say crypto hedge fund executives Pantera Capital.
During the call for investors which took place on February 1, the CEO of Pantera Capital, Dan Moreheadand the company’s investment manager, Joey Krugboth said the crypto market is ready to “decouple” from traditional macro assets, even in the face of higher interest rates.
According to Krug, historical data has shown that when traditional macro assets decline, cryptocurrencies tend to correlate with them for a period of around 70 days before the correlation begins to break down.
In February 2021, when BTC was trading at around $47,000 after correcting around 20% in a week, Krug predicted that a further rise in BTC could occur “by April, if not earlier.” Since then, the price spiked to over $63,000 in mid-April before beginning a steep decline that took BTC below $30,000 in July.
At the moment, Krug estimated that the value of most digital assets is not too high: many DeFi assets are selling at P/E multiples of 10 to 40 while “tech stocks are trading at multiples of 400 to 500x,” Krug said.
The price-to-earnings (P/E) ratio is a metric often used to value stocks, and can be found by dividing the market price per share (or token) of a company (or protocol) by its earnings per share.
“I personally think the $2,200 ETH price was probably the lowest,” Krug added.
Pantera CEO Dan Morehead said assets such as stocks and real estate have cash flows that need to be discounted. “[…] This implies lower prices if yields are higher,” he explained.
Regarding cryptocurrencies, Morehead said their similarities to gold mean they should be valued differently.
“They can behave very differently from interest rate-based products. I think investors will have a choice: they have to invest somewhere, and if rates go up, blockchain will be the more attractive choice,” said the Pantera CEO.
A possible divergence between traditional assets like stocks and cryptocurrencies was also highlighted by Mike McGloneanalyst of Bloomberg Intelligence. On Twitter today, McGlone said high inflation, as well as tensions around Ukraine and Russia, could provide “solid foundation” for Bitcoin (BTC), Ethereum and other digital assets. in 2022.
A little more pessimistic, however, Marcus Sotiriouanalyst at digital asset broker GlobalBlocksaid in emailed comments yesterday that Bitcoin’s trajectory “remains hesitant” and that the recent rise “has been mostly futures-related, while spot has been sold.”
“This suggests that this price rise was driven by speculation or hedging rather than genuine demand,” the analyst added.
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