Crypto volatility may soon recede despite high correlation with TradFi

After forging a minor recovery of sorts earlier this month, the crypto market has returned to exhibiting high levels of volatility over the past two weeks. This trend has pervaded the market since late last year, with the total market capitalization of the digital asset industry having dipped from an all-time high of $3 trillion back in November 2021 to its current levels of $1.08 trillion, representing a drop of over 65%.

This then begs the question: How long is this volatility going to last? Especially since the macroeconomic conditions surrounding the global finance sector have continued to deteriorate steadily since 2020 — i.e., following the start of the COVID-19 pandemic.

In this regard, Abdul Gadit, chief financial officer of automated digital asset trading platform Zignaly, told Cointelegraph that whether one likes it or not, the crypto market is now deeply connected with the traditional finance (TradFi) economy, with the two now beginning to follow a similar trajectory.

In his view, the reason for the ongoing choppy price action and lack of liquidity is extreme retail and institutional caution emanating from rising inflation and recessionary pressure. He went on to add that whenever things start to go south with the economy, investments — especially within the realm of crypto finance — tend to start slowing down. Gadit added:

“Right now, global markets are in the middle of this bearish cycle with the crypto industry getting tighter in terms of its trading ranges. This price action can continue for weeks, if not months unless there is a macro environmental change. Chances of that are fairly low.”

What lies ahead for the crypto market?

Andrew Weiner, vice president of VIP services for cryptocurrency exchange MEXC Global, told Cointelegraph that even though the cryptocurrency market is closely correlated with United States equities, an industry that has remained quite stable over the last few months, there is still a lot of volatility due to growing action within the crypto derivatives segment. However, he said that the crucial narrative dictating the price action of the digital asset sector — at least for now — is the Ethereum 2.0 Merge, adding:

“After the recent discussions surrounding the Merge, the market seems to have totally priced in its effects. If we look at things from a fundamental analysis view, the market has stopped bleeding and is getting ready to start recovering.”

To support this claim, Weiner alluded to his company’s research data, which suggests that from Aug. 8 to 14 alone, a total of 19 projects within the Web3 space raised a total of $501.3 million.

He pointed out that of this figure, the Metaverse, nonfungible tokens (NFTs) and GameFi projects raised $82, while decentralized finance (DeFi), Web3 and infrastructure projects raised a combined $379.3 million. Lastly, various blockchain firms were able to accrue approximately $40 million from various venture capital firms. “Fundraising events are…