Fluctuating Cryptocurrencies: The New Stock Market

Crypto's trend tend to fluctuate much like the stock market. Cesare Fraccasilsts research emphasizes and compares these similarities.

Over the years, crypto coins have experienced exponential growth, which has drawn attention to the crypto space. There was no correlation between cryptocurrency performance and the conventional stocks of other commodities. But this seems to be changing as a result of recent activities and trends in digital assets.

The chief economist of Coinbase, a crypto exchange, has reported a change in the risk profile of crypto assets. According to the study by Cesare Fracassi, crypto performance is similar to that of stock commodities. This means that prices of crypto assets now follow the same trend as stocks like pharmaceutical, oil and gas, tech, etc.

Fracassi's analysis of the connection between the prices of digital assets and stocks was published in a blog post on July 6. He emphasized that the 2020 global pandemic marked an increase in the correlation between those two asset classes. In his explanation, Fracassi cited Bitcoin returns as evidence for this trend.

In his argument, the author states that the average BTC returns over the past decade have shown no correlation to stock market performance. This trend changed, however, when COVID started spreading.

In Fracassi's analysis, the current market movements are taking along crypto assets. As a result, cryptocurrency price trends and risk profiles are no longer separate from the flow within the overall financial system.

Crypto Volatility May Be Paralleled to Commodity Stocks

In support of his explanation, Fracassi pointed out Coinbase’s May report on the volatility trend for BTC and Ether. The monthly insight report showed that the two leading cryptocurrencies have a daily swing between 4% and 5%. Such fluctuations suggest similarities to commodities like natural gas and oil.

Further observation showed that the natural precious metals gold and silver had daily volatility ranges of 1% to 2%. This is a much lower risk profile than Bitcoin, the digital gold.

Fracassi's argument was that macroeconomic forces available in the financial system should be exposed to digital assets. This would result in cryptocurrency moving since they are correlated with the general system and have a similar risk profile.

The economist compared crypto tokens to commodities, and he linked Ethereum, an electric car manufacturer, and Moderna (MRNA), a pharmaceutical firm. Additionally, he connected Bitcoin with Tesla (TSLA), the electric car manufacturer.

The economist pointed out that the current crypto bear market has led to these similarities. However, in his analysis, two-thirds of these similarities are caused by macro factors like economic recession and inflation. The other one-third is caused by the normal weakening outlook attributed to cryptocurrency.

Cryptocurrency market surges on the daily chart | Source: Crypto Total Market Cap on TradingView.com
Daily analysis of the cryptocurrency market shows a rise in value | Crypto Total Market Cap on TradingView

Some experts and analysts believe that the macro factors' impact on the crypto market is a positive thing for the industry.