One of the most frequently asked questions in the cryptocurrency space is whether the Bitcoin (BTC)
price is tethered to the overall performance of the US stock market. This current Christmas crypto market rally may be an indication that Bitcoin (BTC) and other digital coins are independent of the U.S. stock market.
United States Stock Market Plunges
Until Q3 of 2018, the United States stock market has performed well compared to the digital asset market. The digital asset market has slogged throughout a year of losses. Now the tide is turning and the U.S. stock market is now experiencing a plunge after a start that saw it record another strong year coming out of 2017. As from early October, the S&P Nasdaq Composite Index and the Dow Jones Industrial Average wiped out the majority of the gains recorded by the stock market in 2018. The Dow Jones Industrial Average recorded what can only be tagged as the biggest loses since nearly 90 years ago loosing 16.3% from Oct to Dec alone.
The year 1931 was the date when the Great Depression occurred (the last time such a loss was recorded). As for the Nasdaq Composite Index, a close in the bear market is anticipated (a 20% drop). What caused the drop in stocks? Investor concerns have been cited as a major factor as well as the pace at which the Federal Reserve increases its interest rates, concerns over a trade war with China and worry over a looming government shutdown. Others have pointed to signs that the international market is stalling as a factor as well.
As of December 19, the crypto markets have begun to experience a strong rally. Bitcoin went up by 22.6%, from $3,270 to $4,000. For the first time in one year, the overall market has outperformed Bitcoin (BTC) after gaining 28.7% and adding $30 billion in market cap. For reference purposes, the S&P 500, however, is down 6.7% as of Monday, December 24.
Both the S&P and crypto markets have experienced enormous losses since October this year. S&P 500 is down 17% from October highs. The crypto-market was in a bear movement dropping 40% and shedding $90 billion off its market cap.
What are the Long-Term Implications of the Christmas Break?
The Christmas break recorded by the crypto market could have long term implications. One long-standing question in the space is whether the United States stock market and the digital asset market are correlated. Several have speculated that Bitcoin (BTC) could be a safe haven when there is a stock market downturn. Though many major news outlets such as Forbes and CNBC have debunked such claims.
The most recent crypto rally
could yet refute these statement. Because as the stock market plunges, the crypto rally is poised to reaffirm that both markets are not tethered.
Even if the Bitcoin (BTC) isn’t classified as a conventional safe asset, been independent of the stock market could make the cryptocurrency and other tokens useful for different trading strategies. Hedge Funds may look to add BTC in diversified portfolios. Even retirees may include digital assets in their 401Ks. Speculators can be at ease knowing that the US stock market won’t bring down the crypto ecosystem.