Researchers state that increased demand for cryptocurrencies could just mean greater correlations to traditional markets.
According to insights from Goldman Sachs Group shared in a note on Thursday, January 27, the widespread adoption of Bitcoin (BTC) or other cryptocurrencies would not necessarily mean that the price of digital assets in USD will increase.
On the contrary, a widespread acceptance of crypto assets could increase correlation to other mainstream assets. Goldman strategists Zach Pandl and Isabella Rosenberg described the adoption of crypto as a “double-edged sword.”
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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.
According to the authors of the note, there has been a noticeable trend when comparing cryptocurrencies to traditional market assets.
As crypto assets like Bitcoin have become more appealing to the mainstream market in the past couple of years, “their correlation with other macro assets has increased to where crypto is now at the center of recent rotations across asset classes." This trend goes against the general perception of crypto as the perfect diversification tool.
The note also touched upon blockchain technologies and the impact digital developments could have on the market.
Over time, further development of blockchain technology, including applications in the metaverse, may provide a secular tailwind to valuations for certain digital assets. But these assets will not be immune to macroeconomic forces, including central bank monetary tightening.
Despite the insights shared by Pandl and Rosenberg, Goldman Sachs Group does not subscribe to a singular narrative when it comes to crypto. Earlier in January, the banking group speculated that BTC/USD could reach $100,000, likely by stealing market share from gold, which would attract more traditional investors.
Banking strategists and crypto analysts have shared varying views on Bitcoin and other cryptocurrencies and how they may correlate to the traditional markets as digital assets gain recognition and acceptance on a broader scale.