Decoupling. The idea that crypto will someday stop being correlated with other assets setting the stage for a super cycle. It’s an idea that’s been around for years and it’s one that has reemerged in recent weeks and that’s because investors have noticed something. Crypto is not affected by tariffs and this has had more and more investors allocating to crypto as a hedge potentially setting the stage for a full decoupling. Today, we’re going to explain what decoupling is, examine the recent decoupling between crypto and stocks, see if it could happen again, and assess what it could mean for the crypto market. My name is Nick, and this is a video you do not want to miss. The idea that crypto will someday stop being correlated with other assets has basically been around since Bitcoin was created back in 2009. However, it wasn’t until the 2021 cycle that investors started seriously considering that Bitcoin and crypto more broadly could stop being correlated with other asset classes. That was because Bitcoin and many other cryptos were the first assets to rally after the pandemic flash crash in March 2020. As with the tariffs today, it seems that some investors understood that crypto was unaffected by the disruptions caused by the pandemic and started allocating to it as a hedge. The catch is that crypto outperforming stocks when markets are rallying is something that we’ve seen before. Now, you’ll know this if you watched our video about the effects of liquidity on Bitcoin. The uh TLDDR is that Bitcoin will rally with global liquidity but then decouple to the upside at the peak of its own cycle. In other words, when stocks are rallying, Bitcoin rallies harder and other cryptos eventually follow Bitcoin. Of course, the same decoupling happens when stocks are crashing. Bitcoin will crash even more and other cryptos will eventually crash even harder. And this is simply because of how investors view Bitcoin and crypto. Uh for context, most investors view Bitcoin and altcoins as risk assets. Uh so when the macro backdrop is risk on a low interest rates, rise in liquidity, no tariff threats, etc., etc., Bitcoin will outperform stocks and altcoins will outperform Bitcoin. Conversely, when the macro backdrop is risk off, high interest rates, falling liquidity, tariff uncertainty, etc., etc., Bitcoin will underperform stocks and altcoins will underperform Bitcoin. In case you haven’t noticed, the macro backdrop has been riskoff lately. And this is precisely why the decoupling narrative reemerged in recent weeks, specifically in early April. Trump’s tariff threats should have caused Bitcoin to crash way more than stocks per the riskoff macro regime I just explained. However, BTC’s price barely budged and stocks crashed. Uh to clarify, BTC decoupling from stocks to the upside when the macro backdrop is risk on is normal. And BTC decoupling from stocks to the downside when the macro backdrop is risk off is also normal. But BTC staying still and even rallying while stocks crash is not normal and was seen by many investors as early signs of a true decoupling between Bitcoin and stocks. Not surprisingly, it seems that all BTC did was frontr run the broader market rally which took stocks higher in the weeks that followed. And this was essentially what happened at the start of the pandemic. Uh put differently, BTC did not really decouple from other assets. It just rallied before they did, which is normal. Even so, the fact of the matter is that Bitcoin and other cryptos are not subject to the same physical forces as say publicly traded companies. Uh things like pandemics, tariffs, and wars have a minimal effect on crypto due to their decentralized nature. And some have even argued that they actually benefit from this chaos. Although the recent decoupling between Bitcoin and stocks wasn’t permanent, it seems to have been a watershed moment for millions of investors around the world. They are now thinking very seriously about the possibility that Bitcoin and other cryptos could be in a category of their own for the reasons I just mentioned. If this becomes the consensus view, it could set the stage for a crypto super cycle. And by the way, this begs the questions of exactly why Bitcoin recently decoupled from stocks, whether this could happen again, and if altcoins could also decouple from stocks eventually. Starting with the recent decoupling. Now, finding the answer is pretty simple. All we need to do is look at the buyers and sellers of each asset. As a fun fact, it’s estimated that around 30% of the US stock market is owned by foreign investors. And this is effectively because foreign investors have been aggressively investing in US assets in recent years. It is estimated that the amount of US stocks as a percentage of foreign portfolios has doubled since 2010. So uh what do you think would happen if the US administration did something like uh say put tariffs on the entire planet? You should know the answer already. They will probably sell some of their US stocks. Lo and behold, that’s exactly what we’ve seen in recent months. And chances are that this selling hit its apex after Trump’s liberation day tariffs, which you’ll recall is when Bitcoin decoupled from stocks. As another fun fact, BTC’s alternative ticker is XBT with the X meaning that Bitcoin has no affiliation with any country. Uh, hence why gold’s ticker also starts with X, X A T. Given this fact, it’s safe to assume that not many investors were rushing to sell their Bitcoin in protest of Trump’s tariffs. The caveat is that this could have actually been different if the Trump administration had already finalized its Bitcoin reserve plans. In that scenario, BTC could have actually sold off more aggressively as foreign investors sold BTC in protest of Trump’s tariffs. Some would say that’s what Germany did last year. In any case, while there were not many sellers of BTC relative to US stocks, there were many buyers of BTC during the same period. The most notable of these is, of course, Strategy, formerly known as Micro Strategy, which purchased a staggering $27,000 BTC for almost $2.4 billion in April alone. The craziest part is that strategy only accounted for around a quarter of the Bitcoin purchased by private and public companies in April. A data from Bitwise reveals that nearly 100,000 BTC was purchased by public and private companies in April alone. That’s over $9 billion of BTC purchased in one month. When you combine foreign investors aggressively selling stocks with the public and private companies aggressively buying BTC, what you get is a short-term decoupling between BTC and stocks, which is exactly what we got. BTC held strong while stocks fell. And it’s a bit surprising this didn’t last longer. And that’s because asset managers should have started allocating to BTC around the margins. Uh for reference, asset managers are practically required to ensure their clients have as high returns as possible given the circumstances. In this case, stocks crashing and Bitcoin rallying should have resulted in asset managers reducing their exposure to stocks and increasing their exposure to Bitcoin to maintain client returns. As it so happens, it seems that some asset managers did do this precisely for the reasons I mentioned earlier. They saw Bitcoin as an asset that was immune to tariffs and a safe haven that’s similar to gold. A high up at Black Rockck did an interview in April revealing that many asset managers have been doing this for years. Unfortunately, it seems these allocations have not been large enough to move the needle yet. Fortunately, the subsequent rally in stocks in late April took Bitcoin and many altcoins much higher. And it looks like this rally could continue over the summer. And if second question, and that’s whether Bitcoin could decouple from stocks again. And if you’ve been paying attention, you already know the answer is yes, if we’re still in a bull market. And if we are, then we should see stocks rally and BTC rally even harder, decoupling to the upside like always. Obviously, the decoupling we are referring to now is one where Bitcoin holds steady or even rallies while stocks crash. And if you think about it, a repeat of the recent decoupling around tariffs could easily happen again if these same dynamics play out of foreigners selling stocks while companies accumulate Bitcoin. The real question is what would be required for this kind of decoupling to occur indefinitely. And if you think about it, this would fundamentally require investors seeing BTC not as a risk asset, but a safe haven like gold. And you’ll recall that this is not currently the case, but it seems to be slowly changing. More and more investors are starting to see Bitcoin as a safe haven, a digital gold. In theory, this will eventually become a self-fulfilling prophecy because those who see BTC as a store of value will keep gradually buying and holding no matter what, while those who see BTC as a risk asset will gradually sell. The result would be BTC’s price moving more in line with the diamond hands than the uh paper hands. In practice though, there are two problems. The first is that if entities like Strategy continue to buy tens of billions of dollars of BTC, then it could undermine Bitcoin’s safe haven status just because it could create a de facto centralization risk around price. And the same is true if a country was to get heavily involved in Bitcoin. The safe haven investors would see this presence of these players as a reason to stay away. The second problem follows from the first and that’s the effects these Bitcoin whales could have on BTC liquidity. And if there’s only a small float of Bitcoin that’s actively trading, it becomes very easy to manipulate its price and this would make Bitcoin increasingly volatile which could likewise undermine its safe haven status. And that reminds me actually uh there’s been a lot of speculation that Bitcoin could experience a supply squeeze because of all the buying and holding from strategy and other entities like it. And this would involve there being a shortage of BTC supply relative to demand causing its price to go parabolic. While this would be amazing for Bitcoin speculators, it would arguably do damage to Bitcoin’s perception as a safe haven asset. With all that said though, there seems to be one catalyst that could change all of this, and that’s if we start to see central banks buying Bitcoin. For those unaware, central banks are estimated to hold around 20% of gold’s circulating supply, whereas this concentration of assets in private hands could undermine an asset’s safe haven status. It’s a different story when it’s in public hands, uh, so to speak. However, this assumes that the central bank would acquire Bitcoin with the intention of holding it indefinitely as a safe haven asset. If central banks add BTC as a means of diversifying the portfolio, then it probably wouldn’t matter as much as the media is likely to make us believe. Now, take a second to consider that some central banks hold stocks, too. It’s safe to say that those aren’t seen as safe haven assets. And this relates to the third question and that’s whether altcoins could ever decouple from stocks too. Meaning they would hold steady or even rally while stocks crashed. Believe it or not, but some altcoins have technically done this already. Uh most notably tokenized gold tokens like PAXG and X Aut. Now you might be rolling your eyes at that answer, but it underscores something that many people in crypto don’t like to admit. Most altcoins are not all that different from traditional assets. They’re just represented in a different format. And most altcoins are arguably just like shares in unregistered companies. As such, the real question in this case is whether there are any specific categories of altcoins that could serve as a safe haven asset besides tokenized RWAs like PAXG and stable coins like USDC. In this case, the answer depends on whether there’s any use case an altcoin can offer that always has high demand. Right now, it’s all speculation about how the altcoin sector could play out. But, uh, to our mind, there are at least three that could generate said demand in the future. The first is gaming. It’s possible that Gamefy cryptos could someday decouple from stocks, assuming they belong to popular games or gaming studios that are constantly seeing growth or at least holding steady and that the token derives value from this activity. The second is infrastructure. It’s possible that deepened cryptos could likewise decouple from stocks someday assuming they provide critical services that are constantly in demand like uh mobile networks. And I’ll repeat that these tokens would need to derive value from the consumption of these services. And the last one I will mention right now is one that could come a lot sooner and that’s finance. Now all the speculation in crypto makes it easy to forget that its purpose is ultimately to replace the existing financial system. The blockchains and protocols that achieve this could theoretically become safe havens as a result. But again, I need to stress that this assumes that these coins and tokens will derive value from these activities. Right now, most altcoins do not derive any value from the products and services that they provide. And that’s mostly because of regulations. Even without clear regulations, though, you’d quickly find that most products and services that crypto projects provide don’t generate that much revenue. And this means that most coins and tokens are trading way above their fair value. even the most profitable ones. In practical terms, this means that the safe haven status of certain categories of altcoins may not be realized until most of the speculation disappears along with most of the overvaluation. Whereas the disappearance of speculation is conceivable in Bitcoin’s case, it’s a lot harder to see happening in the altcoin sector. And that’s just because at the end of the day, they’re just other Tradfi assets in a different rapper. And this brings me to the big question, and that’s what a decoupling would mean for the crypto market. And the answer is that we’d end up with the opposite of what we have now. Now, to refresh your memory, when the macro is risk on, then stocks rally, Bitcoin rallies more, and altcoins will rally even more. When the macro is risk off, then stocks crash, Bitcoin crashes more, and altcoins crash even more. A true decoupling would therefore theoretically result in the exact opposite. When the macro is risk on, then stocks would rally. But Bitcoin and altcoins would barely move and maybe even fall as money flows out of Bitcoin, altcoins, and other safe haven assets into risk on assets like stocks and whatever else. And this begs a bigger question, and that’s if this is something we really want as crypto investors, especially since safe haven assets don’t tend to rally as much as risk assets in percentage terms. Unless you got into Bitcoin and safe haven altcoins super early, you’d probably prefer them to stay risk because that means you would have more upside, which is what most crypto investors want. To really drive that point home, uh suppose that BTC becomes the safest asset of all. Uh so much so that it became the world’s next reserve currency and fiat currency started being backed by BTC. Well, if you uh look at the early days of the gold standard, you’ll notice something alarming. Gold’s price traded perfectly sideways for almost two decades because governments pegged gold’s price in USD terms. Perhaps we’re mistaken, but this would not be the ideal outcome for Bitcoin, unless you’re a Bitcoin whale. Thankfully, the outcome doesn’t have to be this black and white. Bitcoin and select altcoins could become safe haven assets that keep our portfolios protected during bare markets, while other altcoins continue to be risk assets that deliver the massive returns we all dream of during bull markets. From my perspective, this is the way that things are headed and it seems inevitable because it’s clear that crypto’s technology is superior to Tradfi technology and this means that everything we see in Tradfi will eventually find its way into crypto. Uh the silver lining is that crypto won’t be entirely consumed by trady. It’s likely that we will see new safe haven assets that are like gold and new risk assets that are like stocks emerge in crypto. The fact of the matter is that it’s still too soon to say which one Bitcoin will be, much less altcoins. In Bitcoin’s case though, the trajectory is clear. It seems headed for an eventual safe haven status. In some then a decoupling of crypto and stocks would be good news for those looking to use BTC and select altcoins as safe haven assets during market downturns and it would be bad news for those looking to use BTC and altcoins as a means of getting rich quick. Whatever happens though, it looks like we will be able to do both using crypto for the foreseeable future and that’s all that matters. And if you want to know which catalysts could trigger the next risk on rally in crypto, then be sure to check out our video on that right over here. And if you’re not subscribed to the channel yet, you can do that right over here. That’s me for now. Thank you guys very much for watching and I’ll see you again soon.
