Permalink to Correlation Between Bitcoin and Stocks to Damage Crypto Industry?

The movement between traditional stock markets and the cryptocurrency markets is similar in many ways. This has been observed upon analysis of the gains and losses recorded by both in 2017 through 2018. However, if they actually do share a common ground, it may be based solely on sentiment.

Assets like bitcoin stocks and cryptocurrencies have the tendency to perform similarly in the short run since market movements are driven by the same events in both cases. Despite the stark differences in both markets centered around volatility and regulation, the end game for investors is to make as much profit as they can while keeping losses at a minimum. This is why both markets are driven by most of the same factors, including sentiments.

According to Forbes, analysts have discovered that the long term paints a different picture. There is no relevant correlation between stock markets and cryptocurrencies. This conclusion was made as a result of a study involving Bitcoin, the world’s most valuable currency and the most famous stock index.

Value changes occur as institutional investors enter and exit the cryptocurrency landscape, resulting in either bullish or bearish periods. Special events that affect cryptocurrencies may also have no bearing on the stock market and vice versa.

Why are cryptocurrencies so important?

Cryptocurrency has easily become a popular topic in recent years, especially due to the high value of Bitcoin at more than $6,000 per unit. This figure hit an all-time high of $20,000 on December 17, 2017, making it one of the most valuable assets in the world. As expected, its value sent investors pouring into the industry from every corner of the globe, looking to make huge profits. Other currencies were not left out as some like Stellar Lumens saw more than 5,000% gains during the same period.

Since then, cryptocurrencies have been heralded by some as vessels for change since they power systems built on blockchain technology. However, others have called them bubbles and empty assets with no intrinsic value.

While they are viewed as problematic, one thing is certain: the number of cryptocurrency investors continues to rise. Several nations have also invested in the concept of these digital currencies in various ways from contracting their platforms as seen with VeChain and the Chinese government, to creating national digital assets like the Petro coin in Venezuela. The industry has accumulated a large number of believers who see it as a force for the revolution of the fiscal world with the potential to have an impact as great as the internet. There are now more than 2,000 virtual currencies being exchanged in almost 200 countries, and Bitcoin remains the most prevalent.

The core functionality of blockchain technology is rooted in decentralization and as such, it lacks any form of governance. Although the idea of having complete financial autonomy without the looming presence of a central authority may sound appealing, it has its drawbacks. For one thing, there is no structure to take the blame for theft and fraud – both rampant on the cryptocurrency scene. However, assumptions can be made about the possibility of refining this technology in a way that makes the environment more productive for investors.

How does the crypto market behave like the stock market?

The comparison between the Bitcoin graph and the stock market graph has been studied by several institutions including Blockforce Capital. The firm recently carried out “The Blockforce Analysis,” which looked closely at Bitcoin and the Standard & Poor’s 500 Index (S&P 500) between January 2015 and October 2018. At the end of the study, they found a weak correlation between both markets during this period.

The statement by Eric Ervin, CEO of Blockforce Capital, reads,

“Historically, the correlation between the S&P 500 and Bitcoin has been insignificant. Although correlation values between the two asset classes have ticked up this year versus historical averages, with the current correlation hovering around .11, we believe this to be an insignificant value and don’t believe the two markets to be related. While most people talk about how Bitcoin is not correlated to the S&P 500, it’s important to recognize that not being correlated is not the same as being negatively correlated.”

The Blockforce Analysis