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
Ripple's XRP set sights on $1.100 following renewed investor interest
Ripple's XRP rallied nearly 20% on Tuesday, defying the correction seen in Bitcoin and Ethereum as investors seem to be flocking toward the remittance-based token.
Dogecoin Price Prediction: Could DOGE ETF spark new all-time high after 130% rise?
Dogecoin rose over 15% on Tuesday as traders anticipate a price move toward the $1 threshold following Bloomberg analyst Eric Balchunas's post regarding a DOGE exchange-traded fund.
Hedera's HBAR rallies nearly 20% as Canary Capital files for HBAR ETF
Hedera's HBAR is up nearly 20% on Tuesday as Canary Capital submitted an S-1 registration to the US Securities & Exchange Commission for an HBAR exchange-traded fund.
Ethereum Price Forecast: ETH down despite hype from Beam Chain unveil
Ethereum is down 1% on Tuesday despite developer Justin Drake proposing the Beam Chain, a new consensus layer that aims to ship a series of changes that will fast-track the Main chain's roadmap to faster block times and quantum resistance.
Bitcoin: Further upside likely after hitting new all-time high
Bitcoin hit a fresh high of $76,849 on Thursday as crypto-friendly candidate Donald Trump won the US presidential election. Institutional demand returned with the highest single-day inflow on Thursday since the ETFs’ launch in January.
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.