After a pretty good run, the Dow Jones Industrial Average had a tough two weeks. Cryptocurrency is also under correction. Could there be a connection between the two investment worlds?
We must be careful to use vague terms such as ‘bull and bear markets’ when moving into any investment space. The main reason for this is that the cryptocurrency in the course of its incredible “bull” in 2017 recorded gains of more than 10 times. If you invested $ 1,000 in bitcoin in early 2017, you would earn over $ 10,000 by the end of the year. Traditional equity investing has never experienced anything like this. In 2017, the Dow increased by approximately 23%.
I’m really careful when looking at data and charts, because I realize that you can make numbers say what you want them to say. Just as the cryptocurrency made huge gains in 2017, 2018 saw an equally rapid correction. I am trying to say that we should try to be objective in our comparisons.
Many newcomers to the cryptocurrency camp are shocked by the recent collapse. All they’ve heard is how all these early adopters got rich and bought Lambos. For more experienced traders, this market correction was quite obvious due to the sharp rise in prices over the past two months. Many digital currencies have recently made many people millionaires overnight. It was obvious that sooner or later they would want to take part of this profit from the table.
Another factor that I think we really need to consider is the recent addition of bitcoin futures trading. I personally believe that there are large forces working here, led by the old guard, who want to see the collapse of the crypto. I also see futures trading and the excitement surrounding crypto ETFs as positive steps towards turning crypto into the mainstream and being considered a “real” investment.
After saying all this, I started thinking, “What if there’s some connection here?”
What if the bad news on Wall Street affected cryptocurrencies like Coinbase and Binance? Could this make them both fall on the same day? Or what if the opposite was true and this led to an increase in cryptocurrency as people looked for another place to park their money?
In the spirit of not trying to distort the numbers and stay as objective as possible, I wanted to wait until we saw a relatively neutral playing field. This week is almost as good as any other, as it is a period of time when both markets have undergone adjustments.
For those unfamiliar with cryptocurrency trading, unlike the stock market, stock exchanges never close. I’ve been trading stocks for over 20 years and I know all too well that feeling when you’re sitting on a lazy Sunday afternoon thinking
“I really wish I could trade one or two positions right now, because I know that when the markets open, the price will change significantly.”
This availability, like Walmart’s, can also lead to startling emotional reactions that can snow in both directions. With the traditional stock market, people have a chance to press the pause button and sleep on their decisions overnight.
To get the equivalent of a one-week cycle, I took the last 7 days of crypto trading data and the last 5 days of DJIA.
Here’s a comparison from last week (3-3-18 to 3-10-18). Dow (due to the loss of money from 20 of the 30 companies in which it consists) fell by 1330 points, a decrease of 5.21%.
For cryptocurrencies, finding apples with apples is a little different because the Dow technically doesn’t exist. This is changing, although many groups are creating their own version. The closest comparison at the moment is to use the top 30 cryptocurrencies in terms of total market capitalization.
According to coinmarketcap.com, 20 of the first 30 coins have declined in the previous 7 days. Does it sound familiar to you? If you look at the whole crypto market, the amount dropped from $ 445 billion to $ 422 billion. Bitcoin, considered the equivalent of the gold standard, fell 6.7% over the same period. Usually both bitcoin and altcoin.
Coincidence or causation? How did we see almost similar results? Were there similar reasons?
Although the decline in prices seems similar, I find it interesting that the reasons for this are very different. I told you before that numbers can be deceptive, so we really need to pull back the layers.
Here’s the main news about the Dow:
According to USA Today, “strong wage data have raised fears of impending wage inflation, raising concerns that the Federal Reserve may have to raise interest rates more often this year than the three times it initially reported.”
Because cryptocurrency is decentralized, it cannot be manipulated by interest rates. This may mean that, in the long run, higher interest rates may cause investors to invest their money elsewhere in search of higher returns. This is where cryptocurrency can come into play.
If there were no interest rates, then what caused the crypto correction?
This is mainly due to conflicting news from several countries about what their position will certainly affect the market. People around the world are worried about whether countries will even allow them as a legitimate investment.
There has been some good news over the past week from testimony in Congress by Jay Clayton (SEC chairman) and Christopher Giancarlo (CFTC chairman). The point was that while they wanted to eliminate bad players and ensure compliance with AML laws, they also wanted to allow innovation.
It certainly seems that the connection in such results between the two worlds is uncertainty.
We all know that markets do not like uncertainty. But uncertainty is fleeting. What worries one day can sometimes be resolved overnight. There are times when the news is so stunning that it paralyzes the market for months and even years.
The key is to sift through all this information and decipher what is real and what is not.
Since I have long been involved in both equities and cryptocurrencies, I believe that careful monitoring of both can be quite rewarding. The opportunity to win exists almost every day. This is especially true for cryptocurrency, as I’ve often bought a coin that just fell 30% on the last day and then fell another 30% the next day, but I get it all back in a week. .
I would recommend staying as diverse as necessary (this varies depending on the situation of each individual). There are days when one is up and the other is down. To increase morale, it is good to be able to log in to the account that had a better day. If you have accounts in both worlds, you may be able to contact us.
One thing is for sure, crypto is here to stay and will definitely make investing more interesting.