by Tim Hesselsweet


Yesterday the SPDR S&P 500 ETF (SPY) declined 0.8% and in the process broke down from the trading range that had contained prices for the last week. On the day, the iShares 20+ Year Treasury Bond ETF (TLT) and the SPDR Gold Shares (GLD) both rallied as investors sought out safe-havens.

When volume and volatility rise, larger time frame investors such as macro hedge funds and sovereign wealth funds are actively trading to express their market views. These days provide new opportunities for market participants to test prevailing narratives. One such narrative is the question of whether crypto assets will act like safe-haven assets and rally in the face of declining equities or whether crypto will act like a risk asset and fall in sympathy with equities.

Yesterday offered strong evidence that crypto assets are currently viewed as risk assets. Bitcoin fell 11% and many altcoins including declined more substantially. Ethereum for example went down 17%.

Using historical data since June 30, 2017, I examined how both BTC and ETH have performed following days where SPY declined at least 0.25%, TLT rallied, BTC fell at least 2.5% and ETH declined more than BTC.

There have been 11 similar occurrences and ten days later BTC has tended to rally by an average of 5% with a standard deviation of 23%. To give more insight into that level of volatility, the largest rise was 66% while the largest decline was 24%.

The situation has been less sanguine for ETH as it has fallen by nearly 6% on average over the following 10 days. There’s been volatility here too as that expectation comes with a standard deviation of 18%.

In other words, there has tended to be some short-term persistence to the out performance of BTC over ETH following days where SPY declines, investors seek safety in TLT and BTC declines while outperforming ETH.

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