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Crypto market vs Traditional market: Coinbase claims crypto values heavily rely on idiosyncratic factors

The rising link between the crypto market and the traditional financial sector has sparked discussion. The link between them has led to a surge in institutional investments in the crypto market.

Coinbase has challenged this rising link, claiming that the factors influencing cryptocurrency values are idiosyncratics. As a result, the markets were driven by crypto-specific factors. According to Coinbase, idiosyncratic factors are the reasons behind cryptocurrency’s success.

According to Coinbase’s April outlook report, the major factors driving crypto success were idiosyncratic in character. They differ from those driving traditional asset values, making the asset class the ideal option for portfolio diversification.

David Duong, Coinbase’s head of institutional research, noted:

“Despite the convergence of geopolitical and policy-related concerns impacting almost all risk assets in recent months, our random forest analysis suggests that the return characteristics of cryptocurrencies tend to be more aligned with idiosyncratic rather than cyclical factors.”

Duong conducted his investigation using “random forests.” This machine-learning system identifies the elements that influence crypto investment results. The investigation revealed that several characteristics of cryptocurrencies were unique, and they could be utilised to explain the price fluctuations of cryptocurrencies such as Bitcoin (BTC), Solana (SOL), and Avalanche (AVL) (AVAX).

The analysis singled out the following factors-

  • Tokenomics is a crucial factor in pushing cryptocurrency values higher. 
  • The circulating supply and total value locked (TVL) were important variables influencing the price of younger coins like Solana and Avalanche.

According to Coinbase, Ethereum (ETH) was the only cryptocurrency whose price movement was driven by macro issues. The token price began to sway in the same direction as traditional assets at the end of 2021 and the beginning of 2022.

As a result, Ethereum is gaining popularity as a result of the planned mainnet integration in the second quarter of this year. The Merge will boost ETH’s tokenomics by reducing token issuance and increasing staking returns.

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Vaishali Goel
Technology enthusiast, explorer and academic scholar. Currently exploring the crypto world. Join me in my journey to see how crypto, NFT and Metaverse will change the world.


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