The Relationship Between Stocks and Crypto Markets Is Likely to Weaken in the Future, Citi Says

While equities have been and remain the most important macro driver of crypto markets, the "equity-crypto correlation is likely to fall over time as the nascent asset class matures

Wall Street bank Citi highlighted the weakening relationship between the stock and crypto markets in a research report on Monday. The report noted that while equities have been and continue to be the primary macro driver for crypto markets, this correlation is likely to diminish over time.

According to Citi, several factors contribute to this decreasing correlation, including the maturation of the crypto market, an expanding investor base, technological advancements and increased adoption. However, the bank also pointed out that the speculative nature of cryptocurrency markets may lead to inflated risk asset correlations, particularly during periods of risk aversion.

The report highlighted that a more transparent regulatory regime in the U.S. will lead to more idiosyncratic price action, as noted by analysts led by Alex Saunders.

Regarding Bitcoin volatility, the bank anticipates a long-term decline as institutional adoption grows. Citi also noted that crypto was the only asset class that saw its market cap, expressed as a percentage of U.S. equities, increase over the past year.

Finally, the report suggests keeping an eye on Bitcoin's correlation to gold, as it could serve as an early indication of the "store of value use case."