Just recently, strategists at Goldman Sachs advised investors to be skeptical of narratives that widespread adoption of cryptocurrencies make prices higher. They said the growing popularity of crypto did not boost its value because even though its appeal widened, crypto's correlation with other macro assets increased to the point that it is now at the center of recent rotations across asset classes. That is at odds with the idea that crypto is a tool for diversification.
They added the positive correlation of Bitcoin with "proxies for consumer-price risk," including "breakeven inflation" and crude oil prices, as well as tech stocks. By contrast, there is now a negative correlation between crypto and real interest rates and dollar.
And considering that central banks began taking hawkish stances on monetary policy in the past few months, real rates have risen and dollar has largely strengthened. This hurt both digital tokens and high-value tech stocks, with the total crypto market cap shrinking to around $1.76 trillion.
"Over time, further developments in blockchain technology, including applications in the metaverse, may provide a long-term tailwind to valuations of some digital assets. But these assets will not be immune from macroeconomic forces, including central bank monetary tightening," said Goldman Sachs strategists.
