Crypto Is Not Infected

Matus Steis
Mar 11 · 6 min read

Despite a drop in digital asset and equities prices, the digital asset industry itself remains healthy, but the narrative that digital assets serve as a hedge against the traditional financial system has been shaken.



On December 31 2019, China alerted WHO to several cases of unusual pneumonia in Wuhan, a (river) port city of 11 million people in the central Hubei province. The virus was unknown, today marked as COVID19. Since 1st of January 2020:

  • 126,550 new cases were identified across 126 countries (including USA and the Eurozone), which resulted in 4,640 deaths and 68,325 recovered patients
  • 10-year US treasury yield fell by -71%, S&P 500 fell by -16%
  • Bitcoin is down 15% in market capitalization, Bitcoin hash rate grew by +14.2% and aggregated digital assets trading volume grew by +137%
  • Correlation of Bitcoin and equities diverged from the positive +0.07 to negative -0.12 (3-month period)

Equity Market Fell Based on Fundamentals, Digital Asset Markets Fell Based on Fear.

12/3/2020 was the worst day for S&P 500 since winter 2008, falling down by 10%, and 23% since the beginning of the year. The move was marked by investors’ flight to safety, as the 10-year US treasury yield fell to 0.8%. Equity investors adjusted earnings prospects of companies downwards, as the new coronavirus prevented millions of people from participating in the economy.


Digital assets were down 10% from the beginning of the year on 12/3/2020. However, spot trading volume of digital assets has been steadily growing in the course of the last weeks (137% since the beginning of the year), which indicates that revenues of exchanges, market makers, etc. should not be impacted. Trading currently accounts for ca. ⅔ of revenues in the digital assets space, i.e. $4B per year.

Trading Volume of Digital Assets from 1/1/2020 to 12/3/2020; source:

Volumes of traded derivatives skyrocketed, as investors reacted to increased volatility by either hedging against the price change, or speculating on the price change.


We can clearly see that historical correlation of BTC with S&P 500 is very low, roughly at 0.07.

Source: Rockaway Blockchain Internal Research

Additionally, the 3-month correlation of BTC with S&P 500 is very similar, roughly at -0.12.

Source: Rockaway Blockchain Internal Research

Despite positive correlation in the course of the last couple of days, long-term data clearly shows that digital assets and equities have shown very little historical correlation. Our hypothesis is that the lack of correlation (positive or negative) between equity indices and digital assets indicates that stock markets and digital assets are used by different groups of investors with little overlap in investment theses. When stock investors want to reduce their positions in equities, they do not view digital assets as a valid alternative.

The trading volume of USDC, one the most popular stable coins mirroring the price of USD, rose to $1.4B on 9/3/2020, which is ca. double the volume on 5/3/2020. Our hypothesis is that digital assets investors are moving out volatile digital assets like Bitcoin, Ethereum, etc., and enter into assets immune to volatility, like the stable coin USDC.


Therefore, we believe that in contrast to the drop in equities markets, the digital asset markets fell because of panic and rush to less volatile assets.

Apart from trading volume, mining difficulty of BTC is another metrics that describes the overall health of the digital assets space. It has been growing steadily as well (14.2% since the beginning of the year). However, there has been news that in response to spreading of the virus, the Chinese government started shutting down mining farms (according to Jiang Zhuoer, Given the steady growth, the impact of the shutdowns is unlikely to be big enough to affect BTC hash rate.


It will be interesting to observe the effects on hash rate after the next BTC halving, which is set to take place on 18/5/2020. Reduced mining rewards will cause the revenues of miners to fall by 50%, which combined with the lower liquidity caused by macroeconomic tensions could squeeze many less capitalized miners out of the market. This will have negative short to medium term effects on BTC hash rate. Litecoin underwent similar issues when its last halving happened, as described in this article by Messari (


WHO has marked COVID19 as a pandemic on 12th of March 2020. The negative economic impact of the virus on all economies across the globes causes extreme fear on financial markets. Traditional investors are reducing their exposures in virus affected equity markets and moving to low-risk state-protected bonds. Digital assets investors are also impacted by the global fear level, even though the measured impact on the crypto economy is low. They are transforming the volatile holdings to fiat-pegged stable coins.

Even though the traditional markets and digital assets markets behave with the same conviction on certain days, historical daily log returns show little correlation between digital assets and traditional asset classes (stocks, bonds). It is unlikely that the correlation will radically increase as a result of black swan events without a change in the underlying fundamentals. Cases of extreme fear may indicate the direction in which the correlation may develop as the digital asset class matures. However, given slow historical evolution of the financial system, it is reasonable to expect for the process to take decades. In the meantime, digital assets enjoy benefits of being a great diversification tool. However, for a rational investor, the argument of diversification is not enough to commit their capital. The rational investor has to understand both the health of the industry as well as have conviction of future growth, before making the decision to invest. The 2 most important KPIs in the digital asset industry are general trading volume and BTC mining hash rate. Both are not showing any sign of weakness in growth. Trading accounts for ca. 70% of all revenues generated by the digital assets space. Given the steady growth in spot trading volume and the spike in derivatives trading volume, the digital asset oriented business should largely be unaffected by the decrease in prices of digital assets.

Overall, short-term negative developments related to the COVID19 pandemic have probably had negative impact on the prices in the digital assets industry. However, given the virtual nature of the ecosystem and weak ties to the traditional financial system (low correlation), further downward co-movements are of the prices of equities and digital assets are not expected.

Special thanks to Dusan Kovacic, Rockaway Blockchain Fund’s CIO, and Viktor Fischer, Rockaway Blockchain Fund’s Managing Partner, who provided invaluable input and expertise.

Matus Steis

Written by

Venture Capitalist at Rockaway | Interested in Intersection of Finance & Tech | Oxford & Peking Uni

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