Risk profile of crypto markets similar to oil and tech: Coinbase

According to Coinbase’s chief economist, crypto is often portrayed as a way to hedge against traditional markets. However, digital assets have a similar risk profile as commodities like oil and gas and stocks of tech and pharmaceutical stocks.

This observation is based on a blog post by Cesare Fracassi, Coinbase chief economist. He noted that the correlation between stock and crypto-asset price has “risen significantly” since 2020’s pandemic.

Fracassi stated that while Bitcoin’s returns were not correlated with the stock market for the first ten years of its existence, this relationship has grown rapidly since the COVID pandemic.

“Crypto assets have similar risk profiles today to technology stocks and oil commodity prices.”

He referred to the May monthly insights report of his institute, which showed that Bitcoin and Ethereum are similar to commodities like natural gas and oil. They fluctuate between 4% to 5% daily.

The correlation between crypto and stock markets has increased since 2020. We can see from recent market movements how crypto assets will be more closely intertwined in the future with the rest the financial system. (4/5)
— Cesare Fracassi (@CesareFracassi) July 5, 2022

Bitcoin, often referred to as “digital gold,” has a much more risky profile than its real-world precious metal counterparts like gold and silver. These have daily volatility closer to 1% to 2% according to research.

According to the economist, the most suitable stock comparison to Bitcoin was Tesla (TSLA), an electric car manufacturer.

Ethereum is, however, more comparable to electric car manufacturer Lucid(LCID) or pharmaceutical company Moderna(MRNA) based upon market cap and volatility.

Fracassi stated that crypto assets have a similar risk profile as traditional asset classes like technology stocks.

This suggests that crypto assets will be more closely intertwined and exposed to macro-economic forces that drive the global economy.

Fracassi stated that around two-thirds the recent drop in crypto prices is due to macro factors, such as inflation or a possible recession. A third of the crypto price decline can be attributed simply to a weakening outlook for cryptocurrency.

Related: A crypto capital market structure is essential for the crypto industry

The fact that crypto crashes are being caused by macro factors has been viewed positively by crypto pundits.

Erik Voorhees (co-founder of Coinapult, CEO, and founder of ShapeShift) wrote last week on Twitter that the current crash was not too alarming, since it was the first time that crypto crashes were clearly caused by macro factors other than crypto.

Qiao Wang, a core contributor to Alliance DAO, made similar comments on Twitter. He explained that previous cycles were caused “endogenous” events such as Mt. Gox in 2014, and the bursting the Initial Coin Offering (ICO), bubble in 2018.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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