Deciphering Crypto Macro Correlations, S&P Global Highlights Volatility

The report from S&P Global attempts to uncover some of crypto’s biggest macro drivers

article-image

valerii eidlin/Shutterstock, modified by Blockworks

share

Digital assets are sometimes hailed as a unique asset class that moves independently of others, but analysis from S&P Global suggests crypto is not insulated from broader economic influences.

Of those macroeconomic factors, the impact of global market volatility was most pronounced.

In its report, titled “Are crypto markets correlated with macroeconomic factors?” and published this month, the firm tries to address some of the industry’s biggest themes, such as whether crypto can serve as a hedge against inflation and the impact of the strength or weakness of the US dollar.

It also attempts to address the potential for financial stresses and market volatility to spill over into the industry, as well as the impact of monetary policy.

Traditional financial stress and market volatility

The study found a correlation between increased financial stress, market volatility and declining crypto prices. This suggests a potential contagion risk, where upheavals in traditional finance could spill over into the crypto market.

S&P pointed toward two major macroeconomic impacts on digital assets including when the World Health Organization declared COVID-19 a global pandemic in March 2020. 

Around that time, on March 12, bitcoin shed an incredible 39% — one of the worst single-day losses in the asset’s history.

Other incidents have also highlighted the contagion risks from traditional finance. That included this year’s banking crisis, when the failure of SVB briefly forced two major stablecoins USDC and DAI to depeg roughly 13%.

Crypto prices have been found to have an inverse relationship with the VIX and OVX indexes, both used as a measure for volatility, suggesting that as market fear and volatility increase, crypto prices tend to fall.

Though, as current macroeconomic factors trends take shape, not all agree on their significance.

“Bitcoin’s price is showing resilience amid ongoing economic uncertainty, remaining strong and steady even with open questions around the debt ceiling, inflation, and upcoming interest rate decisions,” Alex Adelman, CEO and co-founder of Lolli told Blockworks via email.

The robust price trends exhibited by bitcoin reveal that investors persistently favor it as an independent asset, he said. Despite macroeconomic fluctuations, the asset has consistently upheld its value, reinforcing its appeal among investors, according to Adelman.

Others have argued that banking sector stress, specifically, may be a tailwind for crypto. 

Monetary and fiscal policy impacts

In its research, S&P found the impact of monetary policy on crypto can also be significant. Expansionary monetary and fiscal policies that increase disposable income can boost investment in “risk on” assets like crypto. 

Conversely, the prospect of tighter monetary policy, such as interest rate hikes, can increase financial stress and market volatility which, in turn, can send digital assets falling.

Unprecedented levels of monetary easing by central banks globally since 2008/09 have inflated the money supply to record levels, which have typically moved in tandem with bitcoin’s price.


Get the day’s top crypto news and insights delivered to your email every evening. Subscribe to Blockworks’ free newsletter now.


Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from Blockworks Research’s Daily Debrief.


Can’t wait? Get our news the fastest way possible. Join us on Telegram and follow us on Google News.


Tags

upcoming event

MON - WED, MARCH 18 - 20, 2024

Digital Asset Summit (DAS) is returning March 2024. This year’s event will be held in our nation’s capital, where industry leaders, policymakers, and institutional experts will come together to discuss the latest developments and challenges in the ever-evolving world of cryptocurrency. […]

upcoming event

MON - WED, SEPT. 11 - 13, 2023

2022 was a meme.Skeptics danced, believers believed.Eventually, newcomers turned away, drained of liquidity and hope.Now, the tide is shifting and it’s time to rebuild. Permissionless II is the brainchild of Blockworks and Bankless. It’s not just a conference, but a call […]

recent research

Cosmos Hub: ATOM Economic Zone

Research

Replicated Security, the Hub’s Validation-as-a-Service offering that went live in March, is the first step in bringing value accrual to ATOM stakers.

/

article-image

Both Ethereum and Solana have enjoyed vibrant DeFi environments, but this has not yet been the case for Cosmos

article-image

As Japan takes important step forward on stablecoins, industry participants say, proposed US laws around such crypto assets remain in flux

article-image

Stablecoins offer global financial access and on-chain transactions without limitations, while FedNow falls short in terms of utility, global reach and inclusivity

article-image

Connext wants to make using layer-2s and layer-3s a seamless experience

article-image

GameStop has been dabbling in Web3 initiatives since at least January 2022

article-image

A study finds that MiCA does not adequately consider the nuances of different DeFi protocols — plus, it leaves out staking, lending and NFTs altogether