Goldman: Bitcoin, Altcoins to Become More Correlated With Traditional Financial Market Variables

The bank’s analysts said digital assets won’t be immune to macroeconomic forces such as monetary tightening.

Jan 28, 2022 at 11:36 a.m. UTC
Updated Jan 28, 2022 at 10:05 p.m. UTC

Will Canny is CoinDesk's finance reporter.

The recent pullback in the cryptocurrency market shows that mainstream adoption can be a “double-edged sword,” Goldman Sachs said in a report Thursday.

Since November, the bank noted, the total crypto market cap has fallen by around 40%. The slide is unique in that it was driven mainly by macroeconomic factors, or developments that were outside digital markets, it said.

Mainstream adoption can raise valuations but at the same time will also likely raise correlations with other financial market variables, which reduces the diversification benefits of holding digital assets, analysts led by Zach Pandl wrote in the note.

The decline in bitcoin was highly correlated to the “drawdown in low-profitability tech stocks" and recent initial public offerings, which reacted negatively to the Federal Reserve’s move toward interest-rate increases, the report said.

Bitcoin is at the center of recent rotations across asset classes, Goldman said. Bitcoin is positively correlated with proxies for inflation risk and frontier technology equity sectors, and is negatively correlated with real interest rates and the value of the U.S. dollar.

Sharp falls in token prices resulted in liquidations and a decline in borrowing on decentralized finance (DeFi) platforms – which use coins as collateral – much like in the traditional financial system, the bank noted.

Further development of blockchain technology, such as metaverse applications, may provide a “secular tailwind” for certain digital assets over time, but they won’t be “immune to macroeconomic forces” such as monetary tightening by central banks, the report said.

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

Trending

1
CoinDesk - Unknown
Sequoia's Guide to Surviving the 2022 Bear Market

Venture capitalists have gotten increasingly frantic over the last few months.

Venture capitalists have gotten increasingly frantic over the last few months.

CoinDesk - Unknown
2
CoinDesk - Unknown
NFT Art Museums Are a Good Idea

The metaverse turns galleries global, and helps fund the arts. This article is part of “Metaverse Week."

The metaverse turns galleries global, and helps fund the arts. This article is part of “Metaverse Week."

CoinDesk - Unknown
3
CoinDesk - Unknown
How the US Can Establish Itself as a Crypto Leader

Regulators have an opportunity to map out thoughtful, strategic policy on stablecoins and beyond.

Regulators have an opportunity to map out thoughtful, strategic policy on stablecoins and beyond.

CoinDesk - Unknown
4
CoinDesk - Unknown
No, the UK Is Not Going to Make USDC and USDT Legal Tender

For “legalize” read “regulate.”

For “legalize” read “regulate.”

CoinDesk - Unknown