During the wee hours of today, the U.S. stock market experienced an opposite price movement from a mass reduction in value to an increase. Inversely, the crypto market further declined today as it lost over $16 billion in market capitalization.
Recent Performance of the Stock and Crypto Market
About two days ago, the U.S. stock market experienced huge losses with the Dow Jones crashing from 25,833 to 24,261, by more than 1,572 points. The number of points lost posed a serious concern to investors in the stock market as it is very infrequent for the size of the Dow Jones to fall by more than 1,000 points within two days. Earlier today, the stock market experienced a trend reversal in value, and the Dow Jones was increased with almost 700 points in the short space of 6 hours.
The reason certain investors consider investing in digital currency is mainly that the crypto market makes it capable of storing value while at the same time, not being affected by bigger markets. Although crypto has its own range of unpredictability in prices, just like gold, the value of digital currencies is affected by demand in the market.
Despite this, the crypto market and other markets with higher trading volumes and market capitalizations do not affect each other in terms of value and the rise of one does not mean a drop in the other. Therefore, the rise in the stock market should not have affected the crypto market.
The vice president of research and development at Bitwise Asset Management, Matt Hougan, stated that;
“Non-correlation is not the same as inverse correlation so there’s no guarantee that when the market goes down crypto will go up. Over the long term, we think the fundamental drivers of crypto are different from the fundamental driver of equities and other assets, and we would expect the low correlation to persist.”
A stock market experiencing a bull trend might basically affect the crypto market positively because it translates to investors taking risks with higher capital seeking higher returns. Poor performance in the U.S. stock market leads to a loss in stock value in Asia and Europe as investors tend to move their funds to fiat and treasuries.
The Expected Trend in the Crypto Market
The CIO at Cornerstone Wealth Management, Alan Skrainka, told USA Today that investors remain wary of the performance of the market in spite of the trend reversal. He further said that stocks are a high-risk asset and advised investors to invest in what they could control.
The recent economic disputes between the two largest economies of the world, the US’s economy and that of China, have led to elevated volatility in the stock market. The suffering global economy also ranks as a factor in the instability of stock markets.
The crypto market might finally bottom out in prices, but until then, it is expected that cryptocurrencies will perform poorly against reserve currencies.