The end of the crypto-diversification myth
Since the onset of the Covid-19 crisis in 2020, the correlation between cryptocurrency and equities went from low and negative to consistently high and positive. This column proposes a new mechanism to explain this new relationship. With investor-level holdings from a bank offering both trading accounts and cryptocurrency wallets, it shows that retail investors’ net trading volumes of stocks and cryptocurrencies are highly positively correlated. Theoretically, this micro-level pattern translates into a cross-asset class correlation.