The cryptocurrency market is facing a paradox: falling despite seemingly favorable macroeconomic conditions and improving regulatory sentiment. The divergence lies not in external factors like gold prices, dollar strength or stock market performance, but more likely in bitcoin's own technical limitations.
Market Performance and Divergence
The crypto market has experienced a significant broad-based selloff to start the year, with bitcoin prices dropping as much as 30%, and coins like Cardano and Stellar Lumens down as much as 70%. This decline is particularly interesting given what should have been, at least in principle, an ideal environment for cryptocurrencies.
Over the same period, precious metals prices have generally increased despite a correction in late January and early February. The U.S. dollar has also fallen in value, and equity markets have continued to rise. Yet cryptocurrencies have struggled – raising questions about what truly drives crypto valuations.
Correlation with Traditional Assets
When examining the relationship between cryptocurrency and precious metals like gold, the connection isn't as strong as many might imagine. Beyond a brief positive correlation in 2020 and 2021, crypto assets generally remain uncorrelated with gold. This divergence is particularly striking because both assets share an appeal rooted in scarcity: the fact that central banks can neither print gold nor bitcoin is a primary driver for investors. However, despite this shared fundamental appeal, their market performance remains decoupled.
Since they’re referred to as cryptocurrencies, it is sometimes assumed that they must be negatively correlated with the U.S. dollar. This was true in 2022 and 2023, but in recent years the dollar-cryptocurrency correlation has been near zero.
The most intriguing relationship is with equities – since 2020, cryptocurrencies have had a positive correlation with the U.S. stock market. What's curious: in the past year, the U.S. stock market has been going up while cryptocurrency prices generally have been falling, yet they maintain their positive day-to-day correlation.
Structural Challenges
If you look at other tokens – such as ether, Solana, XRP and Chainlink – they tend to have one dominant correlation: bitcoin itself – and the market-leading currency appears to be encountering some problems.
For example, its user network has plateaued. When looking at the number of daily transactions, bitcoin seemed to hit its peak around December 2017 and hasn't changed much since. The reason appears to be that the blockchain itself is extraordinarily slow, handling only three to seven transactions per second. In contrast, high-performance networks like Solana can process thousands of transactions per second. This technical disparity underscores bitcoin’s transition from a transactional medium to a more static, speculative asset, as the majority of real-world utility migrates to more scalable ecosystems.
While bitcoin’s value remains anchored in its scarcity, like gold, the key question for investors is whether other tokens, with value-driven, tangible cases and faster blockchains, will move from bitcoin's gravitational pull and help usher the crypto space into its next chapter.
OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.
All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).
