Coinbase shows that the crypto market works in the same way as other traditional markets
Cryptocurrencies showed exponential growth over the years, which attracted the attention of the crypto space. There was no correlation between cryptocurrency performance and conventional stocks of different commodities. However, all this seems to disappear from the recent activities and trends of digital assets.
The chief economist of Coinbase, a cryptocurrency exchange, has reported a change in the risk profile of cryptocurrencies. according to analysis from Cesare Fracassi, the cryptocurrency yield is similar to that of equities. This means that the prices of cryptocurrencies now share the same trend as stocks such as pharmaceuticals, oil and gas, technology, etc.
Suggested reading | Sandbox (SAND) has an explosion with 12% spike in 24 hours
Fracassi made his observation on July 6 through a blog post. He stressed that the global pandemic in 2020 marked the increase in the correlation between the prices of digital assets and shares. In his explanation, Fracassi quoted that Bitcoin returns provided more significant evidence for the similarities in the trend.
According to his argument, the average BTC return over the past decade has not shown any correlation to the stock market’s performance. However, the trend twisted from the beginning of the COVID pandemic.
In Fracassi’s analysis, the current market movements include cryptocurrencies. Therefore, price trends and risk profiles for cryptocurrencies are no longer separated from the flow of the overall financial system.
Cryptovolatility shows similarities with commodity stocks
In support of his explanation, Fracassi pointed out Coinbase’s May report highlighting the volatility trend for BTC and Ether. According to the monthly insight report, the two leading cryptocurrencies show a daily fluctuation between 4% and 5%. Such fluctuations indicate similarities with raw materials such as natural gas and oil.
Suggested reading | ATOM rises to several weeks high, daily RSI shows bullish pattern
Further observations showed that the natural precious metals gold and silver showed 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 available in the financial system. He justified that such an action would move cryptocurrencies since they are correlated to the general system of risk profiles.
The economist analyzed market value and volatility with further comparisons of cryptocurrencies with commodities. He linked Ethereum and Lucid (LCID), an electric car manufacturer, and Moderna (MRNA), a pharmaceutical company. On the Bitcoin side, he connected it to Tesla (TSLA), the electric car manufacturer.
The Economist mentioned that the current crypto bear market has contributed to these similarities. But according to his analysis, two thirds are linked to macro factors such as floating economic recession and inflation. The second third is related to the ordinary weakening outlook attributed to cryptocurrency.
Some experts and analysts share the view that the role of macro factors in the declining crypto market is a plus for the industry.
Featured image from BBC, chart from TradingView.com
