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 banknotes, the total crypto market cap has fallen around 40%. The slide is unique in that it was driven mainly by macroeconomic factors, that is 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 IPOs,” 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, as it 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.
All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.
Recommended Content
Editors’ Picks
Bitcoin Weekly Forecast: BTC nosedives below $95,000 as spot ETFs record highest daily outflow since launch
Bitcoin price continues to edge down, trading below $95,000 on Friday after declining more than 9% this week. Bitcoin US spot ETFs recorded the highest single-day outflow on Thursday since their launch in January.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Solana Price Forecast: SOL’s technical outlook and on-chain metrics hint at a double-digit correction
Solana (SOL) price trades in red below $194 on Friday after declining more than 13% this week. The recent downturn has led to $38 million in total liquidations, with over $33 million coming from long positions.
SEC approves Hashdex and Franklin Templeton's combined Bitcoin and Ethereum crypto index ETFs
The SEC approved Hashdex's proposal for a crypto index ETF. The ETF currently features Bitcoin and Ethereum, with possible additions in the future. The agency also approved Franklin Templeton's amendment to its Cboe BZX for a crypto index ETF.
Bitcoin: 2025 outlook brightens on expectations of US pro-crypto policy
Bitcoin (BTC) price has surged more than 140% in 2024, reaching the $100K milestone in early December. The rally was driven by the launch of Bitcoin Spot Exchange Traded Funds (ETFs) in January and the reduced supply following the fourth halving event in April.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.