According to Coinbase Institute’s chief economist, the value of digital assets is affected by the same factors as commodities such as oil and gas, and tech and pharmaceutical stocks.
Coinbase Institute’s research shows that cryptocurrency can no longer be considered a hedge against traditional financial markets. Thus, Coinbase’s chief economist Cesare Fracassi argues that the “correlation between the stock and crypto-asset prices has risen significantly.”
According to Fracassi, previously, Bitcoin price had no direct correlation with the performance of the stock market, but that all changed after the COVID-19 pandemic began. The economist says that since 2020, the price of crypto-assets has started to respond to stock market indicators. This shows that “the market expects crypto-assets to become more and more intertwined with the rest of the financial system,” says Fracassi.
Therefore, cryptocurrencies are exposed to the same macroeconomic forces driving the global economy. Citing Coinbase Institute’s study, the economist states that today “crypto-assets today share similar risk profiles to oil commodity prices and technology stocks.” Specifically, Fracassi argues that the most appropriate assets for comparison are BTC and Tesla stock (TSLA), ETH and Lucid stock (LCID) or Moderna stock (MRNA).
Fracassi gave the following as illustrative examples of correlation:
- the rise in the cryptocurrency market and the performance of major market indexes amid the Federal Reserve’s decision not to increase the prime rate;
- the reaction of financial and crypto markets to the Fed’s recent key rate hike, when the cryptocurrency market cap dipped below $1 billion.
The economist says that two-thirds of the recent decline in BTC prices was caused by macroeconomic factors, and only one-third — by dubious prospects of crypto projects.
