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Most of the downturn in crypto is attributable to macro factors - Coinbase Research

Most of the downturn in crypto is attributable to macro factors - Coinbase Research

Coinbase Institute published a blog on crypto prices, which states that experts believe that cryptoassets will become further correlated to the existing financial system. 

Coinbase Institute published a blogpost on Tuesday which sought to evaluate crypto prices and market efficiency. It stated the belief that crypto markets had grown in their correlation to the traditional financial system since 2020.

It also stated that the crypto risk profile was similar to oil prices and technology stocks, and that 2 thirds of the crypto decline was caused by macro-economic factors, while the other third was caused by a weakening outlook for cryptocurrencies generally.

The view was put forward that when a crypto bear market ensues, the media response is either “crypto is dead”, or “hodl”, as with all new technologies you just have to ride out the volatility and wait for the technology to become mainstream.

It was noted that neither view really explained the historical trends seen in crypto, and that an understanding of “market efficiency” was better for being able to interpret the data.

The increasing correlation noted in the data was measured by looking at the “beta” score for crypto. Beta is the typical measure of systemic risk for any financial asset, and a beta of zero means there is no correlation.

A beta of 1 means that the measured asset moves with the market, and a beta of 2 suggests that if the market increases or falls by 1%, then the measured asset will increase or decrease by 2%.

The data provided by the blog shows that crypto has jumped from a 0 beta score in 2019, to a beta of 2 currently.

Therefore, in the present stormy macro-economic conditions, it is expected that crypto will continue to go down as long as the stock market does the same - a likely possibility given that the Federal Reserve is continuing to raise interest rates.

As to the future expectations for crypto, the report states that prices are already baked into the market. Therefore, unless there is a change in the outlook for the crypto market, relative to the outlook currently, then there is no reason to believe that crypto prices will change.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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