Crypto correlation - no clear relationship with hedge funds and equities

 

Cryptocurrencies and crypto hedge funds have a return performance life independent of other asset classes and strategies. This is one of their clear benefits but also the reason for why many investors have a problem with crypto. It is not clear what are the drivers for return. Certainly, crypto has moved higher with the stock market and has gained from the excess liquidity across global markets; however, finding independent drivers for price has not been easy.  Some simple analysis from FactorResearch tells the story. 

The correlation between crypto hedge funds, the S&P 500 and the top 50 hedge fund index shows both negative and positive correlation over the last six years. The correlation has ranged between -.6 and .8 with more recent numbers again closing in on zero. 

However, the returns for crypto hedge funds seem to be driven by Bitcoin beta. These hedge funds have the feel of long-only investments with limited downside protection. 

Applying known investment strategies to crypto asset makes sense, but it cannot be expected to have the same return patterns.