Brett Harrison, CEO of crypto exchange FTX US is giving his take on why digital asset markets seem to be closely correlated with US stock indices.

In a lengthy thread, Harrison addresses a common criticism of crypto not being a good inflation hedge or a portfolio diversifier since it strongly correlates with the stock market.

“Every interview I’ve watched (or done) recently includes questions about apparent correlations between stocks and crypto, usually amid discussion of whether crypto is (1) a good inflation hedge, (2) a portfolio diversifier, (3) an independent store of value.”

Harrison says the reason for the correlation is that the same big players who are operating in equities markets are also involved in crypto, making the asset classes move in tandem.

“I think the majority of what we’ve seen with crypto and equity correlations in the last several months comes purely from [extrinsic buy/sell pressure].

Global assets are down, across stocks, bonds, and crypto. Large institutions with allocations across these different asset classes will look for portions of their portfolio to sell off to reduce risk, increase cash balances, cover margin calls, etc

Put another way, in down markets most correlations go to one. Taking a snapshot of correlations at any given time does not tell the story of the intrinsic value of an asset, nor what its true relationship is or should be to other assets.”

In statistics, a correlation coefficient of one indicates a perfect linear relationship.

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Featured Image: Shutterstock/prodigital art/Natalia Siiatovskaia

The post FTX US Chief Brett Harrison Says Crypto Markets’ Correlation With Stocks Not What Traders Think – Here’s Why appeared first on The Daily Hodl.