Bitcoin and Stock Correlation; Is Sentiment the Reason They Move in Tandem?
Bitcoin is Becoming More Like a Stock
Bitcoin has always presented itself as the perfect enemy to the traditional financial system. When the mysterious Satoshi Nakamoto originally coined the cryptocurrency and its notable blockchain, he/she/they were clear in its whitepaper that the crypto ought to be used to escape the follies and problems native to the traditional financial sector.
In this belief, the old stock market was rife with manipulation, fraud, and motivated by a problematic type of greed. They weren’t—and still aren’t—wrong.
But as Bitcoin grew and developed, it eventually caught the interest of large and powerful institutional investors and groups. While this interest has been integral to the expansion of Bitcoin in the public eye, and while it might have also been an important part of the price spike that made so many people into millionaires last year, it has also brought Bitcoin into an interesting limbo of partial-regulation and asset-classification.
Now, price trends are suggesting that Bitcoin is correlating with the traditional stock market in ways that were previously un-imagined, and in ways that some people within the community have a serious problem with.
For the long-term health and well-being of the libertarian-founded asset, it seems problematic that it might just be falling into the same manipulation-ridden trends that dominate the traditional stock market.
Bitcoin And Equities Linked
A Forbes article tackles the perceived correlation issue, saying that Bitcoin has become relatively strongly correlated in price to traditional equities. If the savvy investor just takes a look at the past few weeks’ trends of Bitcoin’s price, it should become increasingly clear that some level of correlation exists. One analyst speculated that Bitcoin’s scary drop from USD $6,500 to USD $6,200 last week coincided with an 800-point overall stock drop that happened just a week before.
This isn’t particularly new. The author outlines that this trend has been seen for quite some time, although he past year or so has been particularly clear in its linking of Bitcoin to traditional fiat stocks and equities markets, likely a result of the increasing regulation being placed on cryptos by governments all over the world.
Not everything is good about the concept of Bitcoin becoming correlated to traditional fiat equities. The author comments that Bitcoin was never really “built” to be correlated in such a way to other assets outside of the blockchain industry.
Because Bitcoin cannot be regulated, it could be heavily abused for “easy money” if the market is able to be manipulated by the same tactics used by major firms to manipulate the traditional financial equities market.
But according to BitBull Capital CEO Joe DiPasquale, the cryptocurrency correlation to traditional assets is only really to be seen in the short term. In an exclusive interview with Forbes, the market analyst outlined his belief that these asset classes tend to perform relatively close to one another when “specific events” drive investors one way or another.
But in the long-term, numerous reports by asset managers all over the world have found no substantive lasting correlation between crypto and traditional asset price trends.
While we may very well be entering a new age of crypto linked more closely to the traditional market, it is unclear whether this price correlation is truly here to stay.