Stock Markets Around The World Plummet: Why Is Bitcoin And Cryptocurrencies Also Falling?
Cryptocurrencies have always been analysed as assets that would work as a hedge against bear trends in the stock market. However, the United States, China and South Korea are registering losses in their stock markets and virtual currencies are falling at the same time. This leads to the question of whether virtual currencies are correlated to traditional financial markets or not.
Virtual currencies are considered as viable long-term investments to preserve value. Younger populations are excited about Bitcoin (BTC) working as a store of value such as gold. Nevertheless, as the global economy weakens for 2019, virtual currencies seem to be following a similar path.
It is important to mention though, that a lack of correlation does not mean that there is an inverse correlation. The cryptocurrency market has usually shown a lack of correlation with the global stock market or even gold. The traditional financial market has operated in an independent way and it did not influence the crypto market.
Over the course of the last few weeks, virtual currencies have fallen between 30% to 50%. The same happened in the stock markets since investors feared a further drop in stocks. One of the main reasons behind this important sell off in the U.S. stock market is the trade war with China.
For example, Shenzhen Composite fell 3.3 per cent and the Shangai Composite lost2.5 per cent. Something similar happened in South Korea where the Kospi fell 1.2 per cent in the last days.
According to the associate director of Prudential Brokerage, Alvin Cheung, there is a negative sentiment around the trade war between China and the United States. During the next week, both presidents, Xi Jinping and Donald Trump, will have a meeting in Buenos Aires. He explained that there are investors closely watching how the meeting will end.
On the matter, he told SCMP:
“There is a lot of negative news about the US criticising China before Trump and Xi meet next week, and that has dented sentiment. The mixed messages could be the US trying to win some bargaining chips for the upcoming meeting. Investors are on the sidelines, closely watching to see if the meeting will yield any concrete results.”
It seems that the traditional stock markets are trying to eliminate high-risk stocks. And this is also affecting virtual currencies. At the same time, the crypto market is being affected by the conflict between Bitcoin ABC and Bitcoin SV supporters.
There are some experts that believe that virtual currencies would work as a store of value if there is a debt or a currency crisis. This could be the case of Zimbabwe or Venezuela. Both countries have experienced high inflation rates (hyperinflation), their currencies cannot be used anymore due to their volatility and cryptocurrencies are taking the scene as the new tools for people to save money or just to process transactions.