Macroeconomic factors to blame for cryptocurrency with more pain likely to come: Coinbase report

It comes as no surprise that deteriorating macro factors have been the cause of the current crypto bear market. However, Coinbase confirmed the idea in a blog post on July 5, adding that the second third was caused by a weakened outlook for cryptocurrencies.

Coinbase noted that the correlation between crypto markets and traditional markets has increased sharply since 2020. This was also the year when pandemic-induced lockdowns were enforced worldwide.

“Therefore, the market expects cryptocurrencies to become more and more intertwined with the rest of the financial system.”

The risk profile for cryptocurrencies is similar to commodities such as oil and technology stocks, it added.

More macro pain in the future

The crypto markets are currently down by around 70% from a record high in November. This is nothing new for a bear market that has previously seen a decline of over 80%.

The main difference with this cycle, however, is that it has been affected by macroeconomic factors and may be the first when the United States is in recession.

A recession is determined by two consecutive quarters with negative GDP (gross domestic product) – the monetary value of all finished goods and services produced within a country’s borders.

In Q1, US GDP was -1.6%, the figure for Q2 will be released on July 28 by the Bureau of Economic Analysis (BEA), and it is not expected to improve. A recession is bad news for the crypto markets, and so is galloping inflation.

June’s inflation rate or consumer price index (CPI) will be released by the US Bureau of Labor Statistics on July 13, and has been forecast at 8.7%, worse than May’s 8.6%. This puts pressure on expenses and investments, especially for high-risk assets such as crypto.

Rising prices and recession

In addition, the Fed is expected to raise interest rates again later this month, which also discourages lending and borrowing and encourages savings in traditional financial avenues. Those with debt will have to pay back more, which further pushes the amount of money available to invest.

Coinbase noted that the current situation is similar to what happened during the dot-com recession 2000–2001. The S&P 500 fell 29%, but the more risky Nasdaq composite index, which consists mainly of technology stocks, dumped 70% from top to bottom.

Therefore, there may be darker clouds ahead for crypto markets, which will hardly survive until the macroeconomic factors are back to relatively normal levels.