The price of bitcoin appears positively correlated with proxies for consumer-price risks like breakeven inflation and crude oil prices, says Goldman Sachs Group strategists Zach Pandl and Isabella Rosenberg. They believe that cryptocurrencies are negatively correlated with real interest rates and the US dollar.
The strategists highlighted that while it can raise valuations, it will also likely raise correlations with other financial market variables. As such, it will reduce the diversification benefit of holding the digital asset class. The tightening of monetary policy and increasing real rates have hurt cryptocurrencies.
It has hit the crypto market capitalization, wiping out more than half from $3 trillion in November 2021 to $1.7 in January of 2022. The Goldman strategists say that further development of blockchain technology may provide a secular tailwind to valuations for certain digital assets. They highlighted that cryptocurrencies will not be resistant to macroeconomic forces.
Goldman Sachs has also brushed off the concept of cryptos being seen as a tool to make the mass populace rich overnight. The multinational investment bank argued that while crypto can raise valuations, it will also raise correlations with other financial market variables. It will reduce the diversification benefit of holding the asset.
Lloyd Blankfein, former CEO at Goldman Sachs, this week in an interview said crypto is evolving. He said he can’t predict the future, but with crypto it is happening. The executive acknowledged that crypto market has lost a lot of value. He also pointed out the fact that whole ecosystems are growing around it. There are also benefits such as reduction of credit risk, blockchain technology and instantaneous transactions.
