After a pretty nice bull run, The Dow Jones has finished the Industrial Average for a few weeks. Cryptocurrency also experiences a correction. Is there a connection between the two investment worlds?
We must be careful with vague terms such as "bull and bear markets" when crossing over to any investment space. The main reason for this is that cryptocurrency saw a gain of more than 10x in the course of its amazing "bull run" 2017. If you put $ 1,000 in Bitcoin in early 2017, you would have earned over $ 10,000 by the end of the year. Traditional equity investing has never experienced anything like this. In 2017, the Dow increased by around 23%.
I am very careful when viewing data and graphs because I realize that you can let the numbers say what you want them to say. Just as crypto saw huge profits in 2017, 2018 has seen an equally rapid correction. The point I am trying to make is that we must try to be objective in our comparisons.
Many who are new to the cryptocurrency camp have been shocked by the recent crash. They only heard how all these early adopters became rich and bought Lambos. For more experienced traders, this market correction was fairly clear due to the towering prices in the last two months. Many digital currencies have recently made many people a millionaire. It was clear that sooner or later they wanted to get a share of that profit off the table.
Another factor that I think we should really consider is the recent addition of Bitcoin futures trading. I personally believe that great forces are at work here under the guidance of the old guard who want crypto to fail. I also see futures trading and the excitement of crypto-ETF & # 39; s as positive steps to make crypto mainstream and consider it a "real" investment.
Having said all this, I started thinking, "What if there is a connection here somewhere?"
What if bad news on Wall Street affected crypto exchanges such as Coinbase and Binance? Can it cause them both to fall on the same day? Or what if the opposite was true and it caused the crypto to increase while people were looking for another place to park their money?
In the spirit of not trying to skew the figures and staying as objective as possible, I wanted to wait until we saw a relatively neutral playing field. This week is about as good as any other because it represents a period in which both markets saw corrections.
For those unfamiliar with cryptocurrency trading, unlike the stock market, the stock markets never close. I have traded shares for over 20 years and I know all too well that feeling that you are thinking on a lazy Sunday afternoon,
"I really wish I could trade a position or two now, because I know when the markets open, the price will change considerably."
That Walmart-like availability can also lead to emotional reactions of the knee that can snow in both directions. With the traditional stock market, people have the chance to press the pause button and make their decisions overnight.
To get the equivalent of a one-week cycle, I took crypto-trading data for the last 7 days and for the DJIA the last 5 days.
Here is a comparison of the past week (3-3-18 to 3-10-18). The Dow (due to 20 of the 30 companies that it consists of losing money) fell 1330 points, representing a decrease of 5.21%.
For cryptocurrencies, finding apples with apples is a bit different, because a Dow does not technically exist. However, this is changing because many groups make their own version of it. The best comparison at the moment is the use of the top 30 cryptocurrencies in terms of total market capitalization.
According to coinmarketcap.com, 20 of the 30 best coins had fallen in the last 7 days. Sounds familiar? If you look at the entire cryptomarket, the size has fallen from $ 445 billion to 422 billion. Bitcoin, seen as the gold standard equivalent, saw a decrease of 6.7% over the same period of time. Typically like Bitcoin so go the altcoins.
Coincidence or causal relationship? How have we seen almost comparable results? Were there similar reasons in the game?
Although the price decrease seems comparable, I find it interesting that the reasons for this vary enormously. I told you before that numbers cheat, so we really have to pull back the layers.
Here is the most important news that affects the Dow:
According to USA Today: "Strong wage data raised fear of upcoming wage inflation, which raised concerns that the Federal Reserve may have to raise rates more frequently this year than the three times it had originally reported."
Since crypto is decentralized, it cannot be manipulated by interest rates. That could mean that in the long run higher prices could lead investors to put their money elsewhere looking for higher returns. That is where crypto could very well come into play.
If it was not interest, what was the cause of the cryptocorrect?
It is mainly due to conflicting news from different countries about what their position will be for the market. People all over the world are uncertain about whether countries even allow them as a legal investment.
Last week there was favorable news from the testimonials from the congress of Jay Clayton (chairman SEC) and Christopher Giancarlo (chairman CFTC). The feeling was that although they wanted to eliminate bad players and ensure that AML laws were complied with, they also wanted to allow innovation.
It seems certain that the coherence in comparable results between the two worlds is uncertain.
We all know that markets do not like uncertainty. But the uncertainty is fleeting. What causes concern on a day can sometimes be solved at night. There are also times when the news is so amazing that it paralyzes the market for a few months and even years.
The key is to search all this information and decipher what is real and what is not & # 39; t.
Because I spend a lot of time on both stocks and cryptocurrencies, I believe that keeping an eye on both can be quite worthwhile. The possibility of winning exists almost every day. This is especially the case in crypto because I have often bought a coin that just fell 30% in the last day and then fell another 30%, but that everything and more recovered within a week.
I would recommend staying as varied as necessary (this varies depending on the situation). There are days when one is up and the other down. For a moral boost, it is nice to log in to the account that had the better day. If you have accounts in both worlds, you might agree with that.
One thing is certain, crypto is there to stay and will certainly make investing more interesting.