Cumberland: ETH's correlation to the Nasdaq creates problems for crypto-native traders

Quick Take

  • The correlation has made it difficult for crypto-native participants to extract alpha from their edge, according to Cumberland.
  • The Chicago-based firm has noticed traders tend to trade in U.S. dollars rather than bitcoin and ether pairs, a divergence from this might be the key to surviving the crypto winter the firm noted. 

Correlation between ether (ETH) and the Nasdaq composite is closing in on highs reached in May of this year, affecting crypto-native traders.

The high correlation between ether and the Nasdaq has made it harder for crypto-native participants to utilize their edge — a deep understanding of on-chain dynamics — according to Cumberland's Jonah Van Bourg.

Van Bourg went on to note in a Twitter thread on Tuesday that many of these crypto-specific traders have a tendency to trade in U.S. dollars rather than using crypto-to-crypto pairs.

"A vestige, perhaps, of the days when digital assets were wholly decorrelated from the broader world of low-vol post-GFC finance," Van Bourg said, alluding to the period following the global financial crash in 2008.

Disconnecting from this could be crucial to surviving the crypto winter, he said. Specifically, Van Bourg was pointing to ETH/BTC, which is trading at local lows at present but could be set to grind higher, similar to what happened following two of the last three bitcoin block reward reductions. 

Van Bourg noted the hot inflation data last week in his thread and macro factors are set to drive prices again this week as the U.S. Federal Reserve is set to announce its plan for the Fed funds rates tomorrow — with most market participants predicting a 75 basis point increase, while some suggest 100 basis points isn't off the table. 

Goldman Sachs noted in a research report this week that the bond market is pricing in a 25% chance of a 100bps hike for Wednesday’s meeting, with analysts expecting “50bp hikes in November and December, taking the funds rate to 4-4.25% at year end.”

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