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Investing.com – Low interest rates, expanding central bank balance sheets and government stimulus measures have all been “drivers of the exponential rise in cryptocurrency prices” over the past two years, according to Morgan Stanley (NYSE:).
Leveraged cryptocurrency markets are now weakening as the US Federal Reserve and other central banks seek to slow balance sheet expansion and prepare markets for interest rate hikes.
Retail investor sentiment on social media has also started to turn less bullish since late last year, with recent declining price momentum also contributing to bearish sentiment, the bank said.
Cryptos Correlated to the Money Supply
Morgan Stanley notes that Bitcoin’s market capitalization has tracked global money supply growth since late 2013. The annual change in money supply peaked in February 2021, while bitcoin’s annual growth rate peaked a month earlier. later.
Blockchain analytics firm IntoTheBlock said last week that bitcoin’s correlation with M1 money supply reached 0.77, suggesting a strong statistical relationship between the two.
A positive exit for cryptos on the horizon
The use of cryptocurrencies as a means of payment or exchange of value is what should determine their long-term valuation. However, the market traded most cryptocurrencies as speculative risk assets, as evidenced by the correlation between bitcoin and stock markets over the past six months, according to a bank.
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