Crypto coins exhibited exponential growth through the years, raising attention to the crypto space. There was no correlation between crypto performance and the conventional stocks of different commodities. However, all that seems to be fading into thin air from the recent activities and trends of digital assets.
The chief economist of Coinbase, a crypto exchange, has reported a change in the risk profile of crypto assets. According to the analysis from Cesare Fracassi, crypto performance is similar to those of stock commodities. This means that prices of crypto assets now share the same trend as stocks like pharmaceutical, oil and gas, tech, etc.
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Fracassi gave his observation on July 6 through a blog post. He stressed the 2020 global pandemic marked the increase of the correlation between the prices of digital assets and stock. In his explanation, Fracassi cited that Bitcoin returns gave more significant proof for the similarities in the trend.
According to his argument, the average BTC returns over the past decade have shown no correlation to stock market performance. However, the trend twisted from the onset of the COVID pandemic.
In Fracassi’s analysis, the current market movements are taking along crypto assets. Hence, cryptocurrency price trends and risk profiles are no longer separate from the flow within the overall financial system.
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 swing between 4% and 5%. Such fluctuations indicate similarities to commodities like natural gas and oil.
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Further observation showed that the natural precious metals gold and silver showed a daily volatility range of 1% to 2%. These values are far lower risk profile than Bitcoin, the digital gold.
Fracassi’s argument stated that digital assets should receive exposure to macro-economic forces obtainable in the financial system. He reasoned that such action would move cryptocurrency since they are correlated to the general system in risk profiles.
The economist analyzed market cap and volatility with additional comparisons of crypto tokens with commodities. He linked Ethereum and Lucid (LCID), an electric car manufacturer, and Moderna (MRNA), a pharmaceutical firm. On the part of Bitcoin, he linked 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 like hovering economic recession and inflation. The other one-third is linked to the ordinary weakening outlook attributed to cryptocurrency.
Cryptocurrency market surges on the daily chart | Source: Crypto Total Market Cap on TradingView.com
Some experts and analysts share the opinion 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