ECB: High Correlation Casts Doubt Over Crypto's Usefulness in Portfolio Diversification

The central bank warned investors that the high correlation between global crypto and stock markets is evident.

Amid fears of recession and rising inflation, the cryptocurrency industry witnessed the entry of many new participants who bought digital assets to diversify portfolios. But the latest declines are hitting them hard as the space continues to move in lockstep with stocks and bonds.The European Central Bank has argued for the use of portfolio diversification in light of crypto declines’ tendency to echo other riskier assets.

In recent years, the crypto industry has become part of the mainstream financial system. However, many experts have argued that it may not be serving its original purpose as an uncorrelated asset if it moves in tandem with its traditional counterpart during periods of uncertainty.It is also important to note that many traditional investors have added crypto to their portfolios. With stock and bond investments suffering in the widespread market rout, some players have cashed out.

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