Introduction

Crypto markets have been attached at the hip to traditional risk assets for the better part of the last 12 months. For better or for worse, everything has been distilled down into one big macro trade. Equities appear to be on the verge of another major test, and so far, there has not been enough evidence of any real decoupling between crypto assets and traditional assets, which we wrote about recently. In order for us to have any strong conviction in the idea of a break in the crypto <> macro relationship, we would need to see more sustained evidence of divergences in markets, and that simply hasn’t materialized yet.

For example, the FOMC’s decision to hike rates another 75bps at the last FOMC meeting was largely expected. What was not expected was the Fed’s projected terminal rate. The updated Dot Plot implied a 4.6% fed funds rate by December 2023, with Powell reiterating the Fed’s hawkish stance. This initially had a material impact on fed funds rate expectations further out the curve (i.e. Q2-Q4 2023).

Fed funds futures reacted, and so did BTC.

Yields on 2-year Treasuries shot past 4% for the first time in 15 years.

Higher short-term borrowing costs contribute to tighter financial conditions. So do higher real rates, which have moved up in recent weeks as nominal yields jumped amid falling inflation expectations.

We know tighter conditions weigh on markets.

Bitcoin has struggled against this backdrop…

…and it’s not alone. ETH has suffered at the hands of the same macro headwinds that BTC has (tighter financial conditions, liquidity contractions, stronger dollar), even despite the most bullish narrative any crypto asset has ever had at its back.

Charts can say a thousand words. Below we compare ETH’s price to high-yield corporate bond spreads (inverted on the right axis). While you could argue the two have little to do with one another, they have moved in lockstep over the last 12 months. We even tweeted this one out, as we struggled to tell the difference ourselves.

Having said that, there have been signs of relative strength within crypto markets in recent weeks. Some argue that this could be indicative of a shift in the relationship between the two. Given the worsening macro conditions, this relative strength has to be considered seriously.

The correlation between