Key facts:
Coinbase says that the correlation between the crypto and financial market has increased “significantly”.
He argues that changes in the outlook for the crypto market will impact prices.
While bitcoin (BTC) and ether (ETH) rallied this week to the $20,000 and $1,100 range respectively, the Coinbase exchange released its view on the crypto market.
“Cryptocurrency prices are a reflection of the market’s assessment of the future prospects of digital assets,” estimated July 5th. Considering that, he highlights that the crypto markets were originally not correlated with traditional financiers.
But Coinbase notes that the correlation between the crypto and financial markets has increased “significantly” since 2020. “Therefore, the market expects crypto assets to become increasingly intertwined with the rest of the financial system,” he says.
For comparison, he mentions that today the risk profile of crypto markets is similar to that of oil prices and technology stocks. That is why its fall in value is correlated with traditional markets, which are registering historical lows.
Coinbase argues that the recent cryptocurrency market slump can be attributed 2/3 to worsening macro factors.while 1/3 is due to a weakening outlook for cryptocurrencies.
He estimates that this is why in the last eight months the market capitalization of all cryptocurrencies went from a high of USD 2.9 trillion to a current level of less than USD 1 trillion. Although he asserts that this type of casualties is normal in this ecosystem, since it has happened several times before.
He comments that whenever there is a sharp decline in cryptocurrency prices, the media and pundits say: Is crypto dead, painting this universe as one gigantic ponzi scheme, or is it time to hold (accumulate because their prices will rise over time)”, something that CriptoNoticias can verify in different reports.
This scenario has affected Coinbase during the first half of 2022, as shown by its 70% drop in the stock market.
Coinbase Says Only Outlook Changes Will Impact Crypto Prices
By way of conclusion, the exchange maintains that price changes occur only when there are changes in the future expectation on the assets. He details that this vision can help understand the historical trends in the prices of cryptocurrencies and their correlation with the financial markets in general.
For example, if bitcoin comes to be seen as a store of value rather than a risky asset, its demand could grow. Such a move would benefit its price.
That’s what he thinks has been going on lately. As for before the fall, Coinbase highlights that in the last 5 years the crypto markets saw very large returns due in part to adoption by institutional and retail investors. Likewise, he believes that another cause of this has been the establishment of the bases of the web3.