Research Summary
The report discusses the recent increase in correlation between crypto-asset spot prices and US equities, with a correlation coefficient of 0.5 over the past 30 days. It also highlights the higher volatility in crypto-asset derivative markets compared to equities, despite recent fluctuations in spot prices. The report further explores the correlation of crypto-assets with gold and equities, the trend of realized volatility, and the implications of implied volatility.
Key Takeaways
Increased Correlation with Equities and Gold
- Correlation Coefficient: Crypto-asset spot prices have shown a 0.5 correlation coefficient with the returns of the S&P 500 over the past 30 days.
- Correlation with Gold: Crypto-assets have also increased their correlation with gold, showing a strong rise in the 30-day correlation of returns.
- Equity Correlation: The correlation with US equities has also increased, reaching levels last seen at the beginning of the year.
Volatility Trends
- Realized Volatility: Both crypto-assets and equities have reported higher realized volatility at the end of August.
- Implied Volatility: Despite the higher realized volatility, crypto-asset derivative markets continue to price for a higher level of volatility.
- Volatility Ratio: The implied-to-realized volatility ratio is highest in equities, even after recent fluctuations in spot prices.
Implications of Implied Volatility
- Implied Volatility in BTC Options: BTC options were priced for higher volatility than had been delivered throughout July and August.
- Volatility Premium in Equities: Equities maintained a higher volatility premium during this period, as traders looked to hedge against a reversal to the recent strong performance.
- Volatility Ratio in US Equities: The volatility ratio in options on US equities (as measured by the VIX) was above one, while crypto-asset derivatives markets reported a lower implied volatility.
Actionable Insights
- Monitoring Correlation Trends: The increased correlation between crypto-assets, gold, and equities could be a significant factor to consider in portfolio diversification strategies.
- Understanding Volatility Dynamics: The higher volatility in crypto-asset derivative markets compared to equities suggests a need for careful risk management in crypto trading.
- Implications of Implied Volatility: The higher implied volatility in BTC options and equities indicates potential hedging opportunities against market reversals.
