At the same time, we expect macroeconomic uncertainty to continue to impact financial markets overall. Correlations among stocks, bonds, commodities and cryptocurrencies have risen in recent months, according to Kestrel data, suggesting investors are reacting more to policy developments than to company-specific fundamentals.
“The rest of the year is going to be chaotic,” he said, arguing that uncertainty around Federal Reserve policy and Treasury funding could keep markets volatile until financial conditions finally improve.
Chris Sullivan, co-founder and portfolio manager at digital asset hedge fund Hyperion Decimus, sees a similar backdrop for the rise in uncertainty, but believes investors are paying too much attention to market narratives and not enough on market mechanics.
He argued that structural changes associated with the launch of the US spot Bitcoin exchange-traded fund (ETF), combined with hedging activity by institutional investors in derivatives markets, are changing the way Bitcoin is traded, weakening many of its historical relationships with broader macro indicators.
Bitcoin’s recent downturn also casts doubt on the idea that Bitcoin has grown beyond traditional four-year cycles. Following the launch of the US Spot Bitcoin ETF, some market participants argued that institutional investors would smooth out Bitcoin’s volatility and bring an end to the familiar boom-and-bust pattern. Sullivan disagreed, saying the current decline is still within historical market cycles and is waiting for an eventual bottoming pattern before declaring the bear market over.
