This year, Bitcoin has had a significant correction, which has coincided with the stock market in the United States plummeting as the Federal Reserve signaled that interest rate hikes are on the way this year. Despite the fact that bitcoin has had a lot of corrections, its popularity among mainstream retail investors is growing.
However, Goldman Sachs feels that it will not be enough to improve Bitcoin’s price. Despite Bitcoin’s public appeal, Goldman strategists Zach Pandl and Isabella Rosenberg noted in a letter to investors on Thursday, January 27 that its correlation to other macro assets has been on the rise as well.
Strong Bitcoin and cryptocurrency liquidations have frequently followed equity market liquidations. Bitcoin’s connection with the S&P 500 has achieved an all-time high, according to Bloomberg data.
Proxies and Bitcoin Have a Positive Correlation
The price of Bitcoin has been favorably connected with several “frontier” technology stocks, crude oil prices, and proxies for consumer-price risk such as breakeven inflation, according to the paper. Bitcoin, on the other hand, has a negative correlation with the US dollar and real estate, according to Goldman. It clarifies:
“Crypto’s recent selloff underscores that “mainstream adoption can be a double-edged sword,”
So, the strategists wrote.
“While it can raise valuations, it will also likely raise correlations with other financial market variables,”
” reducing the diversification benefit of holding the asset class.”
The current drop in the crypto market is due to the Federal Reserve implying that interest rates will rise this year due to strong inflation.
Then, The strategists adds
“Over time, further development of blockchain technology, including applications in the metaverse,”
” may provide a secular tailwind to valuations for certain digital assets.”
” But these assets will not be immune to macroeconomic forces, including central bank monetary tightening.”
Bitcoin and many other altcoins have already lost more than half of their value since their all-time highs. Do you believe the price of Bitcoin will continue to fall below $30,000?
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