Growing Crypto Adoption Might Not Push Prices Higher

According to analysts at the multinational investment bank Goldman Sachs, the growing mainstream acceptance might not result in higher prices for digital assets. Instead, the institution opined that the USD value of bitcoin and the altcoins correlate with inflation and other economic events.

Bitcoin May Not Go Up Due to Adoption

Many experts predict that the prices of most cryptocurrencies will surge should they receive wider mainstream acceptance. However, Goldman Sachs’ strategists Zach Pandl and Isabella Rosenberg are not convinced this will be the case.

“Crypto’s recent selloff underscores that mainstream adoption can be a double-edged sword. While it can raise valuations, it will also likely raise correlations with other financial market variables, reducing the diversification benefit holding in the asset class,” they noted.

In their view, the valuation of digital assets is positively affected by macro-economical factors like breakeven inflation, the prices of crude oil, and the USD value of “frontier” technology stocks. Contrarily, the government’s intentions to combat the financial turbulence could harm the primary cryptocurrency.

Earlier this week, Jerome Powell – Chairman of the Federal Reserve – reiterated the institution’s plans to raise rates and lower the Fed’s balance sheet in March. Shortly after his speech, BTC tumbled from $38,200 to below $37,000.

Pandl and Rosenberg concluded that the further development of blockchain technology, including applications in the Metaverse, “may provide a secular tailwind to valuations” for certain cryptocurrencies. On the other hand, those assets will not be immune to macroeconomic forces such as central bank monetary tightening.

BTC Needs to Steal Gold’s Attention to Reach $100K

At the beginning of 2022, Pandl highlighted a scenario in which bitcoin could reach the $100,000 milestone in the following years. According to him, though, this would happen if institutional investors start preferring purchasing bitcoin instead of gold.

“If bitcoin’s share of the store of value market were “hypothetically” to rise to 50 percent over the next five years, its price would increase to just over $US100,000, for a compound annualized return of 17 percent or 18 percent.”

A few days later, Guido Buehler – Chief Executive Officer of the Swiss-based SEBA Bank – also stated that bitcoin could more than double its price sometime this year. The exec believes institutional investments will be the main factor for this:

“Our internal valuation models indicate a price right now between $50,000 and $75,000. I’m quite confident we are going to see that level. The question is always timing.”

Featured Image Courtesy of WSJ