The recent performance of the cryptocurrency market represented by Bitcoin BTC 0.40% is almost the same as that of the US stock market.
Goldman Sachs said in a report on Thursday that the total cryptocurrency market capitalization has fallen by about 40% since November. The recent pullback in the cryptocurrency market suggests that mainstream adoption can be a “double-edged sword.”
Goldman noted that the decline was largely driven by macroeconomic factors or developments outside the digital currency market.
Analysts led by Zach Pandl wrote in the report that mainstream adoption could boost valuations, but it could also boost correlations with other financial market variables, which would reduce the diversification benefits of holding digital assets.
Bitcoin’s drop, which is highly correlated with “the decline in low-yielding tech stocks” and recent initial public offerings, was a negative reaction to the Fed’s move to raise interest rates, the report said.
Goldman Sachs said Bitcoin is at the center of a recent rotation across asset classes. Bitcoin is positively correlated with inflation risk and a proxy for the frontier tech stock industry, and negatively correlated with real interest rates and the value of the U.S. dollar.
The investment bank noted that sharp declines in the price of certain tokens have led to a reduction in liquidations and lending on decentralized finance (DeFi) platforms — which use the associated tokens as collateral — as in the traditional financial system.
Further developments in blockchain technology, such as Metaverse applications, may provide “long-term growth drivers” for certain digital assets over time, but they will not be “immune to macroeconomic forces such as central bank monetary tightening,” the report said. Impact”.
