The price movements of bitcoin and other cryptocurrencies are expected to remain correlated to the stock market moving forward despite recent divergence, according to a new report.
Coinbase head of institutional research David Duong said that while crypto markets had remained fairly resilient following the Russian invasion of Ukraine, there were still a number of significant uncertainties surrounding the future outlook.
“It’s tough to sustain the current divergence in performance between crypto and other risk assets in light of the shock to the global financial system more broadly,” said Mr Duong.
Among the challenges identified by Mr Duong are the potential for negative impacts on companies divesting from Russia and the possibility of settlement issues for non-Russian banks, particularly in Europe, due to the removal of Russian banks from the SWIFT system.
Mr Duong also noted that the sanctions introduced on Russian central bank reserves had drained the global system of approximately US$300 billion in reserve liquidity which he said could negatively impact risk assets in the coming weeks.
“All of these things represent potential externalities for the global economy, from which crypto is not immune. Thus, we do not yet think digital assets have decoupled from the broader move in risk assets writ large,” he said
“Overall, we think crypto markets will need to see a period of stabilisation in the next two or three months before a more sustainable recovery can get under way.”
While Coinbase previously expected that the crypto recovery would take place sooner, Mr Duong suggested that investors would now need more clarity on the US Federal Reserve’s interest rate hike path and the timing of peak inflation before deploying more capital.
“Something that is harder to assess is how meaningful themes like decentralisation and self-custody could be in the face of recent developments,” added Mr Duong.
“For the moment, whether these discussions are having an impact on flows into this space is still speculative, but the narrative is likely to persist in our view.”
Last week, deVere Group founder and CEO Nigel Green remained bullish on the outlook for bitcoin and said the cryptocurrency was set to reach US$50,000 by the end of the month as a result of the geopolitical tensions.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
