Ratings provider S&P Global has explored the relationship between crypto assets and the macro economy in a new report. The conclusion is indeed “probably” and the details are complicated, mainly due to “anomalous events” such as crypto winter, geography and a short history of the industry.
Crypto assets have a different value proposition and different performance drivers than traditional assets, according to S&P report I got it As the introductory paragraph states, the interconnectedness of the cryptocurrency ecosystem and the macroeconomics is inevitable. S&P analysts compared the S&P Cryptocurrency Broad Digital Market Index (BDMI) to other financial metrics to assess the degree of correlation in five areas.
“Crypto-assets are not immune to macroeconomic change,” says the report, but idiosyncrasy plays a big role in cryptoeconomics. for example:
“In general, the cryptocurrency market has performed well during periods of expansionary monetary policy, although causality cannot be proven. It occurred following unrelated factors.”
Although the variables are different, the relationship between cryptocurrencies and recession expectations is also very specific. In this case, the location of the user and the stability of the local fiat currency are factors. The attractiveness of crypto assets depends on the performance of fiat currencies. Nonetheless, the report noted that the launch of “wealth management products containing cryptoassets” was related to the general perceived ability of cryptocurrencies to withstand economic shocks.
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The full picture of cryptocurrencies as an inflation hedge is unclear. “This is a complex subject and the data may be too short to address with confidence,” the authors write. Again, geography and idiosyncrasies are factors, they said, with cryptocurrencies’ resistance to inflation likely driving their popularity in emerging markets with volatile fiat currencies. The authors also pointed out that cryptocurrency market cycles have non-macroeconomic causes.
Analysts are writing more confidently about the relationship between crypto assets and a strong dollar. There is a clear negative correlation between them, but closer inspection did not support it. “Correlation is no substitute for causation,” says the report.
Crypto’s response to financial stress and market volatility was demonstrated in relation to the CBOE Volatility Index, also known as the Fear Index. As concerns about instability grow in traditional economies, cryptocurrency prices fall. Analysts said the banking crisis in March caused some stablecoin depegs, exposing crypto-friendly banks to crypto idiosyncrasies.
Given that many crypto advocates cite macroeconomic factors such as cryptocurrency’s resistance to inflation as key strengths, the lack of firm conclusions in the report is in itself enlightening. . Analysts speculated that the macroeconomic relevance to crypto assets could increase as organizations adopt cryptocurrencies.
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