Why Drivers of Crypto and Traditional Asset Prices are Similar

Circle Internet Financial's recent study, conducted with researchers from Uniswap Labs and the Copenhagen Business School, explores the factors influencing cryptocurrency asset prices, revealing that digital assets often respond to traditional financial elements such as U.S. monetary policy, similar to conventional asset classes. The research, which breaks down asset prices into monetary policy, market risk premiums, and crypto-specific demand since 2019, highlights that contractionary monetary policy was a major factor in Bitcoin's significant decline in 2022. It also considers the impact of events like the FTX bankruptcy and Bitcoin ETF announcements. By extending its analysis to stablecoins, the study distinguishes between shifts caused by crypto adoption and those by crypto-risk premiums, suggesting that the behavior of crypto prices may be more rational than previously thought.

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