Goldman Sachs analysts say investors should be skeptical of the narrative that rising adoption of the cryptocurrency market will boost prices, Bloomberg has learned. Goldman strategists Zach Pandl and Isabella Rosenberg wrote in a recent report the more adoption cryptocurrencies get, the more correlated they become with traditional assets. This, in turn, might harm crypto's role as a diversification asset.
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"While it [adoption] can raise valuations, it will also likely raise correlations with other financial market variables, reducing the diversification benefit of holding the asset class," the analysts said.
While blockchain technologies, including the metaverse, may impact valuations of cryptocurrencies, they "will not be immune to macroeconomic forces, including central bank monetary tightening," the analysts say.
Goldman's comments come after the Federal Reserve said there is no need to raise interest rates immediately, however, it will start a tightening of monetary policy as early as March. The regulator added that financial conditions "remain accommodative" as job gains have been "solid in recent months," and the unemployment rate has declined.
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