Earlier this month, the International Monetary Fund (IMF) released their analysis on why Crypto, traditionally seen by investors as a hedge against the stock market during bearish trends, is now increasingly correlated to market performance. Their supposition is that because broad adoption of crypto as part of a portfolio is now a standard practice for investors and traders, it is now likely to be leveraged just like any other asset on the market.
This, as they say, is missing the forest for the trees. Crypto isn't just another asset class in people's portfolios. It's the future of money. With over one in four Americans now holding cryptocurrencies and an additional 61% actively considering following suit this year, we are barreling towards a future where dominant blockchains will form the world's most-preferred currencies.
The truth is that in the financial world, cryptocurrencies function as both an asset and a currency, much like how light is both a particle and a wave in the world of physics. It fills both roles. This quantum-like behavior is confusing the regulatory models of yesteryear, but that really isn't so different from how certain astronomical observations befuddled scientists using the classical 'Newtonian' model, is it?
It's going to take the financial world time to catch up. Especially considering the fact that the world's current financial system was designed to be intricate and interdependently embedded in global affairs, untangling the knots enough to realize the full functionality of crypto is going to not only be a grueling process, but one that is likely to overturn the entire system altogether.
So then what is the signification of crypto's correlation to the market? Adoption. That's all. It isn't that crypto is aligning with more traditional asset classes like the IMF thinks. They just don't have the vision to understand that the reverse is true: the market is gravitating to the better kind of money. Imagine holding Venezuelan Bolivar as your denominational liquidity when the US dollar is available: yet that's the world we're living in where people are still preferring the US dollar over projects like Ethereum, Cardano, or Solana.
I've made so much money buying Cardano whenever it gets within 10 cents of the US dollar, and trading whenever I like above $1.50 into a stablecoin, only to reinvest the next time people are fickle enough to let it drop near a dollar again. The window for that is closing, and I expect that $1.50 will be the new floor later this year once we retain the $2 spot again.
The crypto market is unstable because people are still learning about what crypto is, and a lot of bad actors make the crypto environment look scary. It will stabilize for premium cryptocurrencies because adoption is, at this point, inevitable.
We're at part two of a three-stage process:
Stage 1: Crypto does its own thing as a promising technology in its infancy while the market mostly fails to take notice.
Stage 2: Quick adoption + poor understanding means crypto is treated primarily as an asset and is therefore leveraged like one on the market
Stage 3: Increased understanding + global adoption means crypto functions both as a currency and as an asset. In early stage 3, crypto and the market decouple in their performance as skeptics in the market lose out. When they relent, and they must, market performance will become re-correlated to crypto holdings as the denominational value of crypto is determined by the technologies' use cases.
The movement to increased correlation means that we've moved past stage 1, and that my friends is very exciting.