No significant signals to date that markets will adopt crypto assets as a store of value, a new report finds.
The vision of cryptocurrencies fulfilling a role similar to gold—as a store of value to weather economic downturns—remains unrealized, a new report by S&P Global finds. The higher volatility and returns of crypto assets continue to distinguish them more as a high reward asset than a store of value, the report says.
The analysis, part of the report A Deep Dive Into Crypto Evaluation, notes that the price of gold increased by more than 40% from mid-2019 to mid-2020 as many investors transitioned to gold in response to the pandemic. Bitcoin, however, did not exhibit a clear trend over the same period.
More recently, while the gold price has trended upward in 2022, a year indisputably marked by increased geopolitical risk, there was no obvious flight to quality for Bitcoin.
“As inflation fears intensify and inflation indices trend undoubtedly upward, and as supply chain shortages, energy concerns, and war uncertainty continue to grow, Bitcoin’s price fell to its lowest level since November 2021, while gold, after a rally during the first quarter, averaged higher than pre-pandemic levels (e.g., July 2019),” says the report.
A Deep Dive Into Crypto Evaluation compares various crypto assets among themselves and with more traditional assets to provide a better understanding of the asset class, its valuation and the varying volatilities of the diverse crypto markets.
Comparing crypto markets to the S&P 500 and NASDAQ indices, the report finds that daily returns for crypto assets exhibit higher volatility and not a significant correlation with equities (an uptick in correlation in recent months notwithstanding).
“The lack of comparability between crypto assets and equities is not surprising, given that drivers for cryptocurrency valuation are different”, says Cristina Polizu, managing director, of Methodologies, S&P Global Ratings and one of the chief authors of the report.
Though cryptocurrencies do not track equities, the report finds that they do show a notable historical return correlation with each other (excluding stablecoins).
“Despite the fact that the genesis of each coin is independent of each other and the fact that they were created on different platforms using different protocols and at different points in time, our analysis shows (since 2018) moderate-to-high correlation among the cryptocurrencies, excluding stablecoins,” the report says.
Finally, the report observes that while stablecoins (such as Tether, USD Coin and Multi-collateral Dai) are less volatile than other crypto assets, they still exhibit higher volatility than traditional pegged fiat currencies and, historically, have a low correlation with them.
The complete report, A Deep Dive Into Crypto Evaluation is available at: https://www.spglobal.com/en/