The recent pullback in the cryptocurrency market shows that mainstream adoption can be a “double-edged sword,” Goldman Sachs said in a report Thursday.

Since November, the banknotes, the total crypto market cap has fallen around 40%. The slide is unique in that it was driven mainly by macroeconomic factors, that is developments that were outside digital markets, it said.

Mainstream adoption can raise valuations but at the same time will also likely raise correlations with other financial market variables, which reduces the diversification benefits of holding digital assets, analysts led by Zach Pandl wrote in the note.

The decline in bitcoin was highly correlated to the “drawdown in low-profitability tech stocks and recent IPOs,” which reacted negatively to the Federal Reserve’s move toward interest-rate increases, the report said.

Bitcoin is at the center of recent rotations across asset classes, Goldman said, as it is positively correlated with proxies for inflation risk and frontier technology equity sectors, and is negatively correlated with real interest rates and the value of the U.S. dollar.

Sharp falls in token prices resulted in liquidations and a decline in borrowing on decentralized finance (DeFi) platforms – which use coins as collateral – much like in the traditional financial system, the bank noted.

Further development of blockchain technology, such as metaverse applications, may provide a “secular tailwind” for certain digital assets over time, but they won’t be “immune to macroeconomic forces,” such as monetary tightening by central banks, the report said.

All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

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