The massive mainstream breakthrough is a “two-edged sword.” According to a recent analysis by Goldman Sachs, this is the case.
On the one hand, prices are almost certain to rise. Crypto, on the other hand, appears to be becoming increasingly linked to the same adversary that bitcoin was meant to combat: traditional financial markets.
Goldman Sachs analysts Zach Pandl and Isabella Rosenberg noted out in a note to clients on Thursday that the entire market cap has decreased by 39% since November. The drop is noteworthy since it was mostly by macroeconomic forces outside of the cryptocurrency sector.
Massive crypto liquidations have frequently followed significant sell-offs in the financial markets. Bitcoin has reached its highest degree of correlation with the Standard & Poor’s 500, according to the Wall Street bank. The flagship cryptocurrency, in particular, is positively connected with frontier technology stocks, inflation proxies, and crude oil, while being adversely correlated with the USD and real interest rates.
“Mainstream adoption can be a double-edged sword. 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,”
So, the note says
To put it another way, the more connected bitcoin is with legacy markets, the lower the asymmetric profits will be.
The latest crypto market meltdown occurred after the US Federal Reserve announced plans. That’s, to keep interest rates at zero percent while also significantly shrinking the size of its balance sheet whenever rate rises begin. Since COVID-19 shook the world in early 2020. Of course, the Fed has been on the verge of eliminating the massive support offered to traditional finance markets.
Further breakthroughs of blockchain technology, such as metaverse applications, could provide a
“secular tailwind” to the prices of a few crypto assets in the future, according to the paper. However, these assets will not be “immune to macroeconomic pressures, such as central bank monetary tightening.”
Bitcoin and the broader crypto markets have retraced more than 50% from their all-time highs. Given Wall Street’s ups and downs, it’s unknown whether they’ll stay or recoup their losses.