The mainstream acceptance of cryptocurrencies may not be the cause for celebration industry watchers think it to be, suggested Goldman Sachs Group Inc (NYSE:GS).
What Happened: In a note to clients seen by Bloomberg on Friday, Goldman strategists Zach Pandl and Isabella Rosenberg said investors should be skeptical of the narrative that the rising adoption of cryptocurrencies must translate into higher prices.
According to them, as Bitcoin (CRYPTO: BTC) and other crypto tokens gained popularity worldwide, they became increasingly correlated with other macro assets.
“The price of Bitcoin appears positively correlated with proxies for consumer-price risk like breakeven inflation and crude oil prices as well as 'frontier' technology stocks, and negatively correlated with real interest rates and the U.S. dollar,” they said.
As such, the analysts argued that the narrative of cryptocurrencies are a useful tool for diversification is effectively negated.
The analysts also stated that the most recent selloff emphasized how crypto’s mainstream adoption can be a double-edged sword.
“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,” they said.
What Else: Last year, another research note from Goldman Sachs predicted Ethereum (CRYPTO: ETH) would reach a price of $8,000 before the end of 2021.
Goldman Sachs’s managing director of global markets Bernhard Rzymelka said the rising levels of inflation worldwide could benefit crypto assets because of its historical correlation.
"This lines up rather well with the Ethereum chart, suggesting a late-stage rally with longer-term market top ahead,” he said at the time when ETH was trading above $4,600.
Price Action: As of Friday morning, BTC was trading at $36,855.43, down 0.30% in the last 24 hours. ETH was trading at $2,427.76, down 2.75% over the same period. Both assets are down more than 45% from their peak prices last year.
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