Given the changes in 2022, we take a look at the future of cryptocurrency traders and investors
Abstract
Despite being historically uncorrelated with other assets, cryptocurrencies are starting 2021 with an increasingly positive correlation with risky assets like stocks
Inflation, government spending and regulatory potential will be the focus of crypto-focused traders in 2022
2021 has been an interesting and turbulent year for cryptocurrencies, with Bitcoin eventually rising by over 60% and Ethereum by a staggering 350%. But those numbers tell only part of the story.
After hitting highs in November, both coins have been trading much lower recently, with Bitcoin down 38% to the worst and Ethereum down 41%. 2021 has seen several catalysts that appear to have a major impact on cryptocurrency prices, from Coinbase’s April IPO to the October launch of a bitcoin ETF consisting of CME Group futures contracts. However, one of the most unexpected developments in the last year has been the growing positive correlation between cryptocurrencies and risky assets such as stocks.
Historically, an important feature of cryptocurrencies is that they are not correlated with other assets. This is considered valuable in keeping traders and investors diversified. Many traders believe the recent uptick in correlations has something to do with the Fed’s loose monetary policies, which tend to boost a broad range of assets including stocks, commodities, NFTs and cryptocurrencies.
According to Josh Lim, head of derivatives at Genesis Global Trading, “As sophisticated traders at macro trading firms and equity long/short firms continue to view cryptocurrencies as an add-on to their technology portfolio and trade them as other risk assets, the correlation should go even further in 2022.”
Tim McCourt, managing director of alternative equity and investment products at CME Group, believes that wider adoption in the crypto space provides some validity. “The advent of micro-Bitcoin and Micro-Ether contracts, along with regular-sized contracts, has helped institutional and individual engagement continue to grow.” At CME Group, this trend continues through the end of 2021.
