The long-standing relationship between stock markets and cryptocurrency markets is expected to weaken in the long run, according to a recent research report by Wall Street banking giant Citigroup (C). The report, released on Monday, highlights key factors that could contribute to a gradual decline in the equity-crypto correlation as the digital asset market continues to evolve.
Declining Correlation as Crypto Matures
While equities have historically been a major macroeconomic driver for the crypto market, Citi analysts believe this influence will diminish over time. According to the report, as cryptocurrency matures as an asset class, gains a broader investor base, and experiences technological advancements, its dependency on stock market trends is likely to decrease.
“The equity-crypto correlation is likely to fall over time as the nascent asset class matures, the investor base grows, technology advances, and adoption progresses,” the report stated. This shift could mark a new era for cryptocurrencies, making them more independent from traditional financial markets.
Speculation and Market Risks
Despite this projected weakening correlation, Citi warns that the speculative nature of cryptocurrency markets remains a key factor in market behavior. The bank notes that risk asset correlations may become exaggerated, especially during periods of heightened volatility or risk-off events, where investors shift capital away from riskier assets to safer investments.
The report suggests that clearer regulations in the U.S. could lead to more “idiosyncratic price action,” meaning that crypto assets may start reacting to their own unique factors rather than following broader market trends. Analysts led by Alex Saunders emphasized that regulatory transparency could make crypto price movements less dependent on traditional financial markets.
Bitcoin’s Volatility and Institutional Adoption
Citi’s report also provides insights into Bitcoin’s (BTC) long-term price stability. The bank predicts that Bitcoin’s volatility will continue to decline as institutional adoption of the asset grows. Greater participation from large-scale investors, hedge funds, and corporations is expected to bring more stability to the crypto market, reducing extreme price swings.
Additionally, Citi noted that in the past year, cryptocurrency was the only asset class whose market capitalization, as a percentage of U.S. equities, showed significant growth. This trend indicates that despite market fluctuations, crypto continues to attract investment interest, solidifying its place in the financial ecosystem.
Bitcoin’s Growing Relationship with Gold
One of the more intriguing insights from Citi’s research is Bitcoin’s increasing correlation with gold. The bank suggests that this trend could signal Bitcoin’s growing use as a store of value, a narrative that has gained traction among investors looking for alternatives to traditional safe-haven assets.
“Bitcoin’s correlation to gold is also worth tracking as it may be an early sign of the ‘store of value’ use case,” the report stated. If this correlation strengthens, Bitcoin could further position itself as “digital gold,” a term often used to describe its potential role in wealth preservation.
The Future of Crypto Independence
The weakening relationship between equities and crypto could signal a turning point for digital assets, allowing them to develop as an independent asset class. As the industry continues to mature, regulations evolve, and institutional involvement increases, cryptocurrencies may exhibit less reliance on stock market movements and instead move based on their own fundamentals.
For investors, Citi’s report highlights an important shift in market dynamics, emphasizing the need to watch developments in regulation, institutional adoption, and the evolving role of Bitcoin as a store of value.
Citi’s latest findings present an optimistic outlook for the cryptocurrency industry’s future, particularly in terms of its long-term independence from traditional financial markets. As crypto adoption and innovation continue, investors and analysts will be keenly observing whether these predictions hold true and what it could mean for the future of digital assets.
Stay tuned to Crypto News Today for more updates on the evolving crypto landscape.
