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

The network activity has also been falling on Ethereum and stalling on the Bitcoin blockchain, the report said.

NEW YORK (CoinDesk) – The cryptocurrency market has continued to underperform other risk assets amid weakening demand, and is expected to stay highly correlated with equities, Citi (C) said in a research report on Friday.

The bank noted that both bitcoin and ether (ETH) spot exchange-traded funds (ETFs) have seen outflows. The bitcoin ETF (BITO) saw outflows of $100 million in the past week, while ether ETFs (ETH) saw outflows of $30 million, the report said.

"ETFs have seen net outflows, layer 1 activity has fallen or stagnated and funding rates remain very low," analysts led by David Glass wrote. Funding rates are the difference between price of the perpetual futures and the spot price of digital assets. A positive funding rate indicates that perpetuals are trading at a premium to the spot price, indicating increased demand for bullish bets.

Looking forward, the bank said it expects the crypto market to remain highly correlated with equities amid the upcoming macro calendar, which kicks off with today's Nonfarm Pay rolls report.

"Crypto has continued to underperform other risk assets and is now highly correlated to equities, which we expect to remain the case heading into the macro data calendar," the report said.

Recent weakness in digital assets has resulted in lower energy consumption by bitcoin (BTC) miners and "weaker production cost model outputs," the report said.

"Bitcoin has seen lower hashrate and weaker production cost model outputs, while ether has seen activity stall and both are now trading below key moving averages," the report noted.

Meanwhile, the market cap for stablecoin continue to grow, shrugging off the recent market weakness, the bank said.

"Total stablecoin market cap has continued to rise despite the recent weakness in the crypto market," the report said.

The Bitcoin hashrate, a proxy for competition in the industry and mining difficulty, is now at the upper end of its recent range, the report noted. Hashrate refers to the total combined computational power used to mine and process transactions on a proof-of-work blockchain.

"Bitcoin hashrate has risen sharply in recent months and is now at the upper end of its recent range," the report said.

Activity has also been trending lower on the Ethereum blockchain, and stalling on the Bitcoin network, the report added.

"Layer 1 activity has fallen or stagnated on both chains, with ether activity now stalling after trending lower in recent months, while bitcoin activity has seen a recent uptick after bottoming out earlier this year," the report said.

Rival Wall Street bank JPMorgan expressed similar sentiment in a report on Friday. It said the crypto ecosystem lacks major catalysts in the near-term and digital assets are likely to be more sensitive to macro factors.

"The crypto ecosystem lacks any major catalysts in the near-term, and we expect digital assets to be more sensitive to macro factors, especially in the absence of any directional catalyst within the crypto ecosystem," JPMorgan analysts wrote.

"We expect crypto markets to continue trending lower in the coming weeks, and remain range-bound until the upcoming macro data, which we expect to be the main driver for markets in the near-term," the report added.

Read more: Crypto Market Lacks Major Near-Term Catalysts, JPMorgan Says

Edited by Sam Reynolds

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