The decline in crypto market volatility has been a notable trend over the past few months, and it's largely due to a change in retail investor behavior.
Historically, retail investors have driven the crypto market through speculation, reflexive buying-the-dip behavior, and nimble capital rotation across tokens. However, new data suggests that this relationship is undergoing a structural shift.
The latest data from J.P. Morgan's Strategy team, combined with proprietary crypto retail fund flow data, confirms that U.S. equities and crypto are becoming substitutable risk assets.
Correlation Reversal
Overlaying Wintermute's proprietary crypto retail fund flow data against J.P. Morgan's data on retail inflows into U.S. equities yields a fresh perspective on how retail activity relates across these two markets.
The correlation between the two markets has reversed, with retail investors now making 'either/or' allocation decisions rather than buying both simultaneously.
Causality
It's essential to note that the crypto retail base is not large enough to pull capital out of U.S. equities. Instead, the surging retail enthusiasm in U.S. equities is draining liquidity from crypto.