Coinbase Shows Crypto Market Works Similar To Other Traditional Markets
Cryptocurrencies have grown exponentially over the years, bringing attention to the crypto space. There was no correlation between the performance of crypto and conventional stocks of different commodities. However, all of that seems to be fading due to recent digital asset activities and trends.
The Chief Economist of Coinbase, a crypto exchange, has reported a change in the risk profile of crypto assets. According to analysis by Cesare Fracassi, crypto performance is similar to that of commodities. This means that the prices of crypto assets now share the same trend as stocks such as pharmaceuticals, oil and gas, technology, etc.
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Fracassi shared his sighting on July 6 via a blog post. He pointed out that the 2020 global pandemic marked the increase in the correlation between digital asset prices and stocks. In his explanation, Fracassi cited Bitcoin‘s returns as giving more significant evidence of the similarities in the trend.
According to his argument, average BTC returns over the past decade have shown no correlation with stock market performance. However, the trend twisted as soon as the COVID pandemic began.
According to Fracassi analysis, current market movements are driving crypto assets. As a result, cryptocurrency price trends and risk profiles are no longer separated from the flow within the overall financial system.
Crypto Volatility Has Similarities to Commodity Stocks
In support of his explanation, Fracassi pointed to Coinbase’s May report highlighting the volatility trend for BTC and Ether. According to the monthly analysis report, the two major cryptocurrencies show a daily swing between 4% and 5%. Such fluctuations point to similarities with commodities such as natural gas and oil.
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Further observation showed that the natural precious metals gold and silver exhibited a daily volatility range of 1% to 2%. These values have a much lower risk profile than Bitcoin, the digital gold.
Fracassi’s argument stated that digital assets should be exposed to macroeconomic forces obtainable in the financial system. He felt that such an action would move the cryptocurrency as it is correlated to the general system in risk profiles.
The Economist analyzed market capitalization and volatility with additional comparisons of crypto tokens to commodities. He linked Ethereum and Lucid (LCID), an electric car manufacturer, and Moderna (MRNA), a pharmaceutical company. On the bitcoin side, he tied it to Tesla (TSLA), the electric car maker.
The Economist mentioned that the current crypto bear market has contributed to these similarities. But, according to his analysis, two-thirds are related to macroeconomic factors such as economic recession and inflation. The other third relates to the ordinary weakening outlook attributed to cryptocurrency.
Some experts and analysts share the view that the role of macro factors in the decline of the crypto market is a plus for the industry.
Featured image from BBC, chart from TradingView.com