Czy bitcoin is digital gold? A safe haven for capital during hard times? Is it growing during the crisis?
Today you probably already know the answer, which is "nie"!
Let's take a closer look at how strong the correlation of the stock market and cryptocurrency.
The crypto boom and the state of the economy
Some believe that bitcoin was created as a response to the global financial crisis. Mass print of fiat currency and filling the budget holes of unprofitable banks with them. Excessive creation of securities, behind which there is no value.
Until now, throughout the history of bitcoin and cryptocurrency, there was no major crisis, so it was not known how the price of bitcoin would react to a recession in the economy. Based on the increase in bitcoin prices during local crises, such as in Greece or Cyprus, bitcoin was thought to behave like gold and the Swiss franc, i.e. a safe haven for capital during hard times. Bitcoin as an opposition to the current, rotten financial system and inflatable economy like a balloon.
Meanwhile, look at the bitcoin price and index of 500 largest US companies, S & P 500.
It is clearly seen that bitcoin was rising on the wave of economic boom. The bull market is conducive to investing in more risky assets that offer a high rate of return. Such investments include development companies (type growth), startups and new instruments such as cryptocurrencies.
Bitcoin rose to $ 1100 with the rise in share prices. The correction to $ 240 took place during the slowdown on the US stock market. Even some individual up and down movements overlap each other there.
A further boom on bitcoin (in 2016-2017) also took place during the significant increases in US stock prices. Peak (ATH) on bitcoin, although it precedes the local peak on SP500, but remember that in the next month other cryptocurrencies grew significantly and tokens.
The sharp fall in the valuation of US shares from early February 2018 is again positively correlated with the sharp fall in cryptocurrency prices.
Further decline in cryptocurrency and bitcoin prices (from $ 6000 to $ 3200) also took place during the fall in share prices in the US and other markets (e.g. in Poland), which, just like the cryptocurrency market, react violently to any price fluctuations in the US.
There is even a saying - "when the US stock market sneezes, other stock exchanges get a runny nose"- the same can be said about the cryptocurrency market today.
In addition, please note that the last two reflections on cryptocurrencies coincide with the moment of setting new peaks on US stock exchanges.
Detailed correlation of the stock exchange and cryptocurrencies
Let's also look at price movements on the market stock in the US and bitcoin valuation from this period.
The bounce on the cryptocurrency market from January and February 2020 took place when the US market reached new heights. The fall in the price of bitcoin began slightly faster than the crash on the US stock market caused by a coronavirus pandemic.
Panic on the US stock market has given cryptocurrency investors. There has been an escape from risky assets, and the most risky are those with high volatility, i.e. cryptocurrency.
As a result of panic and sales, the US stock market lost as much as 9,5%, and bitcoin at that time became cheaper by a record 44% !!!
How much bitcoin and tokens react to what is happening in the economy can also be seen in the example of March 3, 2020, when the Fed reduced interest rates by 0,5%. Bitcoin then reacted exactly the same as the US stock market.
As you can see in the examples above, the correlation of the stock exchange and cryptocurrencies is strong and positive. The cryptocurrency market is not detached from other financial markets, as was commonly thought until recently.
They invest in bitcoin or tokens, it is worth analyzing the wider market context - the state of the global economy and the moods on the most important stock markets.