He who knows only his own side of the case, knows little of that. – John Stuart Mill
He who knows only his own side of the case, knows little of that.
For much of the past decade, cryptocurrency markets and the Nasdaq have behaved less like unrelated asset classes and more like different expressions of the same macroeconomic environment. Periods of abundant liquidity and falling real yields have tended to lift both, while tighter financial conditions have weighed on each.
Historically, the relationship between crypto and the Nasdaq has reflected shared macro conditions. During the 2020-2021 liquidity surge, both expanded rapidly, with crypto acting as a higher-beta expression of speculative risk. When monetary policy tightened aggressively in 2022, both corrected sharply. While the drawdowns differed in magnitude, the timing and direction were broadly aligned, reflecting a shared macro backdrop rather than shared fundamentals. More recently, the chart shows a brief narrowing of that gap followed by renewed separation. Crypto rallied late last year, temporarily moving closer to the Nasdaq, before stalling and giving back ground as equities continued higher.
One factor behind that move was its timing. Crypto’s rally late last year coincided with the U.S. election and a repricing of political risk. The perception that a Trump victory could bring a less hostile regulatory environment reduced downside scenarios that had been weighing on the space and helped pull sidelined capital back in. That effect proved temporary. Once political risk was repriced, the move required support from broader macro conditions to persist. That support did not materialize. Liquidity remained constrained, policy expectations were largely unchanged, and real rates stayed elevated. In the absence of reinforcement, crypto resumed discounting a more cautious macro backdrop.
Crypto appears to be discounting a world in which real rates remain higher for longer, policy responses are more constrained, and liquidity does not return as it did in prior cycles. The Nasdaq, by contrast, is discounting a path in which growth remains resilient, margins hold up, and valuation risk is treated as secondary. Neither view needs to be wrong in isolation, but they cannot both be fully right indefinitely.
Over time, those differences can resolve in one of three ways. The relationship itself might have changed, with crypto continuing to price a different macro future and no longer realigning with equity risk assets. Crypto could also rally to reconnect if macro assumptions shift and liquidity expectations improve. Or the Nasdaq could sell off to reconnect as valuations compress and growth assumptions are reassessed.
The chart does not tell us which outcome will prevail. It tells us that expectations have diverged. The question is whether that divergence resolves through a structural change in the relationship, a renewed crypto rally or an equity market adjustment.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
