Digital assets, in particular bitcoin, are dependent on the monetary strategy of the US Federal Reserve, according to analysts at Goldman Sachs. They suggest that cryptocurrencies are not immune to macroeconomic forces such as monetary tightening.
The pullback in the cryptocurrency market that occurred in late January 2022 shows that the regulator’s measures are a double-edged sword. However, the Federal Reserve is not the only one responsible for a plunge in digital assets. The collapse in the low-margin tech stocks that went public not so long ago is seen as the principal cause for the bearish cryptocurrency market. Such stocks showed sharper reaction to the upcoming rate hike by the central bank.
As adoption broadens, virtual assets will increase their correlation with other financial instruments, Goldman Sachs said. So, they risk losing their advantages. Experts from MSCI are on the same page as the bank, emphasizing the relevance of cryptocurrencies for stock prices.
Financial strategists at Goldman Sachs pinpoint the positive correlation of BTC with inflationary risk and tech innovations. At the same time, there is a negative correlation between the real interest rate and USD. Last year, the correlation between the first cryptocurrency and US tech stocks hit new highs, Bloomberg noted.
"Over time, further development of blockchain technology may provide a secular tailwind to valuations for certain digital assets," Goldman Sachs said. "But these assets will not be immune to macroeconomic forces, including central bank monetary tightening."
