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Goldman Sachs just flagged the crypto curse of the first quarter

April 7, 2022, 8:47 PM UTC

While it seems as if many investors are looking for stocks with blockchain exposure these days, they may want to place their bets on the wider S&P 500 instead. 

It’s the latest bad news for investors coming out of the “crypto winter.” Analysts for Goldman Sachs said over the weekend that they see a 38% chance of a recession over the next 24 months.

If that holds true, some companies with blockchain and crypto exposure will be in a tenuous position because of their correlation with Bitcoin. Instead of acting as a store of value, akin to gold, where investors would put their money during downturns in the market, Bitcoin “is still being used as a proxy for risk rather than a shield,” Goldman analysts wrote in a separate report Thursday. 

Because investors generally risk less in economic downturns, according to Goldman’s reasoning, more investors could sell the cryptocurrency during a recession in favor of less risky assets. That could cause Bitcoin prices to fall. If blockchain-based stocks continue to be correlated closely with Bitcoin, they could follow suit.

How bad has the year to date been for crypto-connected firms? The S&P 500 outperformed blockchain-exposed stocks by eight percentage points on average since the start of the year, according to a Wednesday report by Goldman Sachs.

The report compared the historical stock market index, made up of 500 of the biggest American companies, with a bespoke Goldman basket of public companies that had some business involvement with blockchain technology or crypto. The S&P 500 fell 5%, while Goldman’s basket fell by 13%, strategists led by David Kostin wrote in the report. Some of Goldman’s blockchain-exposed stocks include Michael Saylor’s MicroStrategy and Elon Musk’s Tesla.

Whether these stocks fell or rose has been most influenced by the popular cryptocurrency Bitcoin. Blockchain-exposed stocks had a 67% correlation with the price of Bitcoin over the past six months, the report noted. When Bitcoin prices fell dramatically in January, the prices of these stocks largely followed, according to the report.

But even though blockchain-exposed stocks have lagged relative to the S&P 500 since the start of the year, the equities have been outperforming the S&P 500 since the jump in Bitcoin prices following their “crypto winter” lows in late January.

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