Crypto Market to Stay Highly Correlated to Stocks Amid Macro Events and Dwindling Network Activities, Citi Says

As a seasoned analyst with years of experience under my belt, I’ve seen bull markets turn bearish and vice versa more times than I care to remember. The latest report from Citi, echoing similar sentiments from JPMorgan, suggests that the crypto market is likely to continue its dance with the stock market for now.

In simpler terms, the value of cryptocurrencies has struggled compared to other investments that carry risk, as interest wanes, and it’s predicted that their performance will closely mirror that of stocks, according to a report released by Citi on Friday.

As an analyst, I’ve observed a notable trend: Exchange-Traded Funds (ETFs) have experienced net withdrawals, activity on Layer 1 platforms has either decreased or remained static, and funding rates persist at extremely low levels. To elaborate, funding rates refer to the gap between the price of perpetual futures and the current value of digital assets. When this rate is positive, it signifies that perpetuals are trading above the spot price, suggesting a heightened demand for bullish wagers.

As we move ahead, the bank predicts that the cryptocurrency market will continue to closely follow the stock market trends, with this correlation starting from today’s Nonfarm Payrolls report, marking the beginning of the upcoming macroeconomic calendar.

In spite of the recent market instability, the market capitalization of stablecoins has persistently expanded, according to the bank’s statement.

In simpler terms, the amount of computational power being utilized to mine and verify Bitcoin transactions, often seen as an indicator of competition within the industry and mining complexity, is currently near its highest levels in recent times, according to the report. The term “hashrate” refers to the total combined processing power on a proof-of-work blockchain network.

The activity level on both the Ethereum and Bitcoin networks has been decreasing as of late, with a noticeable slowdown observed. According to the report, this trend seems to be persisting.

On Friday, a competing financial institution on Wall Street, JPMorgan, shared an opinion that mirrors this viewpoint. In their report, they stated that the cryptocurrency sector currently seems devoid of significant triggers in the immediate future. They also suggested that digital assets could be more responsive to broader economic factors.