A recent Coinbase Institute Research has highlighted some of the determinants of the recent seemingly persistent decline in the prices of crypto assets. The research attempted to attribute the current bear market majorly to macroeconomic policies, with a minimal effect caused by sentiments in the crypto space.
Macroeconomic policies are affecting crypto as well
In the Coinbase Institute Research published by the Chief Economist at Coinbase Institute and the Director of the Blockchain Initiative at Texas McCombs, Cesare Fracassi, crypto markets were noted to have massively grown in adoption to the extent of being intertwined with the conventional financial markets.
Fracassi noted that this correlation of the crypto markets with the global financial system became more pronounced from 2020 – the year that saw one of the major growths in crypto adoption rate due in large part to the damaging economic effects of the pandemic.
As a consequence of this correlation with the financial markets, Fracassi pointed out that crypto prices are now moving in the direction of global technology stocks and oil prices; and this contributes significantly to the current decline in the crypto market.
Macroeconomic policies like interest rate hikes, economic growth, and price stability, among others, are major determinants of the direction of the stock market. As a result of the recent interrelationship between the stock market and the crypto market, these policies are also affecting the prices of crypto assets.
Fracassi believes that these policies, which have been factored in by world governments’ desperate attempts at combating inflation, make a two-thirds contribution to the current Crypto Winter.
Crypto outlook makes one-third contribution to the current crypto decline
Market sentiments unarguably play an important role in determining how crypto assets perform. Fracassi believes that the market sentiments or crypto outlook make one-third of the contribution to the current crypto decline.
When the prices of digital assets plummet, the mainstream media and opinions from notable personalities within the space respond in either of two ways: spread FUD by arguing that crypto is dead and investors should capitulate to salvage what is left or encourage investors to HODL their assets because crypto is a “groundbreaking technology” and will bounce back.
Speaking on the future of the crypto market, Fracassi believes that the global outlook about crypto assets will determine whether the prices of the assets will reach new highs or plummet to record lows. “Only changes in the outlook of the crypto industry relative to what is already expected will bring changes to prices,” the report concluded.