Bitcoin and other digital currencies are highly speculative and risky assets that are unevenly affected by monetary policy tightening by central banks. This is according to a study published by one of Germany’s largest banks.
Cryptocurrency free fall
The free fall of cryptocurrencies may crumple. This is due to the complexity of the entire system, analysts at Deutsche Bank write in a newly published report. Achieving price stability for digital currencies is difficult because “there are no pricing models like those for publicly traded equities,” Deutsche Bank said. Moreover, the cryptocurrency market is very fragmented, she said.
The cryptocurrency threat
This means, among other things, that the liquidity of the market can vary significantly from one cryptocurrency to another. Cryptocurrencies are also threatened by the macroeconomic situation, which is currently resulting in the tightening of monetary policy by central banks in the form of interest rate hikes. This is not good for digital currencies, as the flow of liquidity into the markets is dampened, and the yields of less risky assets preferred by investors are rising. Cryptocurrencies are also strongly correlated with equity markets, according to Deutsche Bank.
