JPM on BTC sound and fury signifying nothing. Think tulips:
Despite tremendous volatility in Cryptocurrencies this week, movements in global markets have been even tamer than this year’s other corrections in January due to meme-stock trading or in February due to a high-vol sell-off in US Rates. A basket of the three largest Cryptos (Bitcoin, Ethereum, Binance) is down 20%week-on-week, which takes their drawdown from spring highs to about 40%. Intra-day peak-to-trough moves on some have been 30-40%, however, so much greater than the S&P 500’s largest-ever percentage drop of-20% on Black Monday in 1987. If these were penny stocks, such volatility might be more spectacle than systemically material, but these are no longer small markets. The five largest Cryptos have market caps of $50-$700bn each even after the past month’s decline. That makes each of them more valuable than about 70% of the companies in the S&P. In terms of mindshare, at least judged by financial press coverage, Bitcoin has become almost as talked as Presidents and more discussed than inflation or the Fed (chart 2).
Despite the numbers, contagion from a bear market in crypto has been limited during every boom-bust cycle. This month Global Equities (MSCI ACWI) are down less than 4% from their peak, DM/EM Credit spreads are up only5-10bp from their2021 lows, Commodities (BCOM) are down 3% from this year’s highs, the trade-weighted dollar remains near its year-to-date lows and equity volatility(VIX) has rallied only four percentage points (to 20%). This isn’t the sort of mediocre, cross-asset correction one would have predicted if one had known a month ago that a $2 trillion market–so about half the market cap of the S&P Financials sector–might soon shed 40% of its value.
