Study Reveals Similar Drivers for Crypto and Traditional Asset Prices

Recent
research
spearheaded
by
Circle
Chief
Economist
Gordon
Liao,
alongside
Uniswap
Labs
and
the
Copenhagen
Business
School,
reveals
that
the
drivers
behind
cryptocurrency
prices
are
remarkably
similar
to
those
influencing
traditional
asset
prices.
The
study
provides
a
deeper
understanding
of
how
monetary
policy
and
other
financial
factors
play
pivotal
roles
in
the
crypto
market,
according
to

Circle.

Key
Findings
from
the
Research

The
research
decomposes
asset
prices
into
three
main
components:
monetary
policy,
broad
market
risk
premium,
and
crypto-specific
demand.
Analyzing
data
since
early
2019,
the
study
found
that
contractionary
monetary
policy
was
responsible
for
over
two-thirds
of
Bitcoin’s
(BTC)
significant
drop
in
2022.
This
finding
underscores
the
influence
of
traditional
financial
policies
on
digital
asset
prices.

Moreover,
the
research
delves
into
various
significant
events,
such
as
the
FTX
bankruptcy,
Bitcoin
ETF
announcements,
and
the
financial
turmoil
caused
by
the
COVID-19
pandemic.
These
event
studies
further
illustrate
that
cryptocurrency
price
movements
often
mirror
those
of
traditional
asset
classes
in
response
to
global
financial
market
dynamics.

Bitcoin
Return
by
Shock
Since
2019

The
study
also
presents
a
detailed
analysis
of
Bitcoin’s
returns
in
response
to
various
shocks
since
2019.
This
includes
both
market-wide
shocks,
such
as
changes
in
U.S.
monetary
policy,
and
crypto-specific
events,
providing
a
comprehensive
view
of
the
factors
influencing
Bitcoin’s
price.

Stablecoins
and
Crypto
Adoption

Extending
its
analytical
model,
the
research
incorporates
stablecoins,
deemed
safe
assets
within
the
crypto
ecosystem.
By
examining
changes
in
stablecoin
market
capitalization,
the
study
differentiates
between
shocks
driven
by
variations
in
crypto
adoption
and
those
driven
by
crypto-risk
premiums.

The
findings
suggest
that
cryptocurrency
prices
may
be
more
logical
and
predictable
than
previously
perceived.
This
revelation
could
reshape
how
investors
and
market
analysts
approach
crypto
market
dynamics,
bridging
the
understanding
gap
between
digital
and
traditional
financial
markets.

For
more
detailed
insights,
the
full
research
paper
is
available
on
Circle’s
official
blog.

Image
source:
Shutterstock