By Nathan Ferguson
2021 was declared a big year for cryptocurrency in many ways. According to the reports from cryptocurrency observers, it looked like the year of bitcoin to enter the mainstream. However, the big mainstream development represents a “double-edged sword.” This is according to a current report of banking gigantic Goldman Sachs.
On the one hand, values will almost certainly increase. On the other side, the cryptocurrency seems to be increasingly attached to the enemy that bitcoin was created to replace the traditional financial markets. According to a Thursday note for shareholders, Goldman Sachs analysts Zack Pondel and Isabella Rosenberg displayed that the total market cap has collapsed by 39% since November. The decline is significant because it began primarily with macroeconomic factors outside the crypto market.
Large-scale liquidations in cryptocurrencies often result in substantial sell-offs in equity markets. According to the report of Wall Street Bank, Bitcoin has established its top level of engagement with the Standard & Poor’s 500. Particularly, the flagship crypto is positively linked to Frontier Technology stocks, consumer risks such as inflation, and proxies for crude oil, while the USD and real interest rates are negatively linked.
Adopting the mainstream can be a double-edged sword. While this could increase prices, it could potentially increase interaction with other financial market variables, thereby reducing the diversified benefits of holding asset classes, “the note said.
Look at it differently. The more the bitcoin is linked to the legacy markets, the less disproportionate the profits.
The latest cryptocurrency crash comes as the US Federal Reserve unveils plans to keep interest rates close to 0%, as well as significantly reduce the size of its balance sheet as rates begin to rise. The Fed is close to ending the shocking stimulus to traditional financial markets since COVID-19 shook the world in early 2020.
The report goes on to say that further breakthroughs in blockchain technology, including Metaverse applications, could offer a “secular tailwind” in the future for the value of a pair of cryptocurrency assets.
However, these assets will not be protected from “macroeconomic forces, including the central bank’s financial tightening.”
Bitcoin and combined cryptocurrency markets have fallen more than 50% off their record highs. Looking up and down in Wall Street, it is difficult to say that they will stay or compensate for their losses.