Analysts at global banking titan Goldman Sachs reportedly say that widespread adoption of Bitcoin and crypto assets may not be as bullish as most investors believe.
The strategists tell Bloomberg that as the adoption of Bitcoin and other cryptocurrencies increases, their price starts to correlate more and more with other macro assets such as crude oil, technology stocks and the US dollar.
A correlation with traditional markets could ultimately make crypto assets unsuitable for diversification, according to the analysts.
“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.”
Since reaching a $2.8 trillion peak in November, the market cap of the entire cryptocurrency industry has shrunk down to $1.72 trillion at time of writing, staggering 38.5% decrease in nearly three months. Some analysts have pointed out that the crypto market’s struggles are often correlated with the stock market or strength in the US dollar.
Goldman says that even as blockchain technology improves, digital assets still might not be able to escape from macroeconomic influence and monetary policy.
“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.”
Don't Miss a Beat – Subscribe to get email alerts delivered directly to your inboxFeatured Image: Shutterstock/Space creator/Vladimir Sazonov