Coinbase says idiosyncratic factors were behind crypto performance


There has been debate over the increased correlation between the cryptocurrency market and the traditional financial sector. The correlation has been attributed to an increase in institutional investments in the cryptocurrency sector.

However, Coinbase has disputed this growing correlation saying that the factors affecting the prices of cryptocurrencies were idiosyncratic. Therefore, the markets were being driven by factors unique to crypto.

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Coinbase says idiosyncratic factors are driving crypto prices

Coinbase published the April outlook report saying that the key factors behind cryptocurrency performance were idiosyncratic in nature. According to Coinbase, the factors driving the performance of crypto assets differed from those driving the prices of traditional assets, making the asset class the best option for portfolio diversification.

The head of institutional research at Coinbase, David Duong, wrote that “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 made his research using “Random forests.” This machine-learning algorithm detects the variables that affect the returns from cryptocurrency investments. The analysis showed that some features were unique to cryptocurrencies, and they could be used to explain the price movements of cryptocurrencies such as Bitcoin (BTC), Solana (SOL) and Avalanche (AVAX).

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The report singled out tokenomics as a major variable driving the prices of cryptocurrencies. The circulating supply and the total value locked (TVL) were key factors that affected the price of newer cryptocurrencies such as Solana and Avalanche.

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Ethereum (ETH) prices driven by macro factors

According to Coinbase, Ethereum (ETH) was the only cryptocurrency whose price movement was influenced by macro factors. The token price started swaying in a similar trend to traditional assets towards the end of 2021 and at the beginning of 2022.

Ethereum is attracting interest because of the mainnet merge expected during the second quarter of this year. Coinbase notes that The Merge will strengthen ETH’s tokenomics as token issuance decreases and staking yields increase.

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