In the same way that traditional financial assets are tied to economic growth, TD believes bitcoin is too
There may come a time when crypto assets replace gold as a traditional safe haven for investors, but we are still a long way from that day. TD Economics says cryptos appear to be influenced by many of the same factors as stocks. According to TD, the crypto market has not yet protected investors from macroeconomic and traditional asset volatility.
A substantial correction in equity markets occurred during the first half of 2022, and cryptocurrencies followed suit. Since the economic environment has deteriorated, crypto assets have shown a high correlation with equity markets, even though a lower correlation was seen when economic growth was strong and interest rates were low.
In addition to being a growth-linked asset, cryptos are also more volatile than other growth-linked assets, and investing in them represents an investment in future economic growth, according to the report.
The report noted that, in 2022, returns on gold and the major crypto assets have had nearly no correlation with each other, suggesting they could serve as a form of “digital gold.”
As the report points out, despite the fact that there are unlimited crypto assets, they don’t seem to provide diversification within the crypto space – since most assets appear to be highly correlated with Bitcoin and Ethereum.
According to the report, investors in this market will have difficulty diversifying their risk.
Crypto assets have not fulfilled their promise of improving on traditional financial assets, even though the report acknowledged that the crypto space is still in its infancy.
A crypto-asset may be developed in the future that can be used as a safe store of value and hedge against economic risks, but that world is hard to envision currently,” the report said. It seems that they are influenced in the same manner as other risk assets at the moment.”
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