Crypto coins have shown exponential growth over the years, raising the profile of the crypto space. There was no correlation between crypto performance and conventional stocks of various commodities. However, all of that seems to be disappearing due to recent activity and trends in digital assets.
The chief economist of Coinbase, a crypto exchange, reported a change in the risk profile of crypto assets. According to analysis by Cesare Fracasi, crypto performance is similar to that of commodities on the exchange. This means that crypto asset prices now share the same trend as stocks like pharmaceuticals, oil and gas, technology, etc.
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Fracassi made his observation on July 6 via a blog post. He emphasized that the global pandemic of 2020 marked an increase in the correlation between digital asset and stock prices. In his explanation, Fracassi stated that Bitcoin returns provide more significant evidence for trend similarities.
According to his argument, average BTC returns over the past decade have shown no correlation with stock market performance. However, the trend has reversed since the start of the COVID pandemic.
According to Fracasi’s analysis, the current market movements relate to crypto assets. Therefore, cryptocurrency price trends and risk profiles are no longer separated from the flow within the overall financial system.
Crypto volatility shows similarities with 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 insight report, the two leading cryptocurrencies show daily swings 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 show a daily volatility range of 1% to 2%. These values have a far lower risk profile than Bitcoin, the digital gold.
Fracassi’s argument stated that digital assets should be exposed to macroeconomic forces that can be obtained in the financial system. He concluded that such action would trigger cryptocurrencies because they are linked in risk profiles to the overall system.
Economist analyzed market capitalization and volatility with additional comparisons of crypto tokens to commodities. He linked Ethereum to Lucid (LCID), an electric car maker, and Moderna (MRNA), a pharmaceutical firm. On the Bitcoin side, he linked it to Tesla ( TSLA ), the electric car maker.
Economist mentioned that the current crypto bear market has contributed to these similarities. But according to his analysis, two-thirds are related to macro factors such as economic recession and inflation. Another third is related to the usual downside prospects attributed to cryptocurrency.
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