Two-thirds of the crypto market meltdown can be ascribed to macroeconomic causes, according to a recent study by Coinbase.
It is not surprising that the current crypto bear market has been brought on by worsening macro-factors. In contrast, Coinbase stated that the idea was accurate in a blog post on July 5 and added that the other third was brought on by a deteriorating prognosis for cryptocurrencies.
Since 2020, the association between cryptocurrencies and conventional markets has increased significantly, according to Coinbase. Global lockdowns brought on by the pandemic were also implemented this year.
“Thus, the market expects crypto assets to become more and more intertwined with the rest of the financial system.”
The risk profile of cryptocurrencies is comparable to that of commodities like oil and tech stocks, it was added.
Future Macro Pain
From their peak in November, the cryptocurrency markets are currently down almost 70%. For a bear market that has already experienced drawdowns of more than 80%, this is nothing new.
But this cycle is significantly different because it has been influenced by macroeconomic variables and may be the first one in which the United States experiences a recession.
Gross domestic product, which measures the monetary value of all the finished goods and services produced inside a nation’s borders, must be negative for two consecutive quarters in order to be considered in a recession.
The U.S. GDP for Q1 was -1.6 percent, and the figure for Q2 will be reported by the Bureau of Economic Analysis (BEA) on July 28. It is not anticipated that the number will improve. Crypto markets should avoid recessions and soaring inflation.
The U.S. Bureau of Labor Statistics will announce June’s consumer price index (CPI) on July 13; it is anticipated to be 8.7%%, which is worse than May’s 8.6%. Spending and investing are restricted as a result, particularly in high-risk assets like cryptocurrency.
Rate Increases and the Recession
The Fed is also anticipated to raise rates once more this month, which will further discourage borrowing and lending and promote saving through conventional financial channels. Debtors will be required to make larger payments, which will put additional pressure on the amount of money available for investment.
According to Coinbase, the current circumstance is comparable to that of the dot-com recession in 2000–2001. The riskier Nasdaq composite index, which is mostly made up of tech equities, plunged 70% from peak to trough while the S&P 500 fell by 29%.
The crypto market may therefore be facing heavier skies in the future, which won’t likely dissipate until those macroeconomic factors return to more normal levels.
