Market Analysis Report (31 Jan 2022)

Goldman Sachs has warned that investors should not expect rising cryptocurrency adoption to translate to riches for their portfolios, as analysts at the investment bank have speculated prices may not rise as adoption grows.

In a note sent to clients, Goldman Sachs analysts Zach Pandl and Isabella Rosenberg wrote that cryptocurrencies like bitcoin have been seeing their mainstream appeal grow over the last few years, which has to some extent seen their correlation with other macro assets grow.

The price of BTC, they added, appears to be positively correlated with proxies for consumer-price risk like crude oil prices and breakeven inflation, as well as with technology stocks. These are negatively correlated with real interest rates and the U.S. dollar. Goldman’s strategists wrote:

“While it can raise valuations, it will also likely raise correlations with other financial market variables, reducing the diversification benefit of holding the asset class.”

The strategists estimated that “further development of blockchain technology, including applications in the metaverse, may provide a secular tailwind to valuations for certain digital assets, but noted these assets won’t “be immune to macroeconomic forces, including central bank monetary tightening.”

Source: https://www.cryptocompare.com/email-updates/daily/2022/jan/31/