After a pretty good bull run, the Dow Jones Industrial Average has had a tough few weeks. Cryptocurrency is also experiencing a correction. Can there be a connection between the two investment worlds?
We need to be careful about using vague terms such as "bull and bear markets" as we cross into each investment space. The main reason for this is that during its amazing 2017 bull run, cryptocurrency saw gains of well over 10x. If you put $ 1,000 into Bitcoin in early 2017, you would have earned well over $ 10,000 by the end of the year. Traditional equity investment has never experienced anything like it. In 2017, the Dow rose approx. 23%.
I’m really careful when reviewing data and charts because I realize you can make the numbers say what you want them to say. Just as crypto saw huge gains in 2017, 2018 has seen an equally rapid correction. The point I am trying to make is that we have to try to be objective in our comparisons.
Many who are new to the cryptocurrency camp are shocked by the recent crash. All they heard was how all these early adopters got rich and bought Lambos. For more experienced traders, this correction was pretty obvious due to the skyrocketing prices of the last two months. Many digital currencies recently made many people overnight millionaires. It was obvious that they sooner or later want to take some of this profit off the table.
Another factor that I think we really need to consider is the recent addition of Bitcoin futures trading. I personally believe there are great powers at work here, led by the old guards who want to see crypto fail. I also see futures trading and the excitement around crypto ETFs as positive steps towards making crypto mainstream and considered a "real" investment.
Having said all that, I started thinking, "What if there is some connection here somehow?"
What if bad news on Wall Street affected cryptocurrencies such as Coinbase and Binance? Could it cause them both to fall on the same day? Or what if the opposite was true and it caused the crypto to rise as people were looking for somewhere else to park their money?
In the spirit of not trying to hide the number and remain as objective as possible, I wanted to wait until we saw a relatively neutral playing field. This week is about as good as any, as it represents a period when both markets saw corrections.
For those unfamiliar with cryptocurrency trading, unlike the stock market, stock exchanges never close. I've been trading stocks for over 20 years and know all too well the feeling of sitting on a lazy Sunday afternoon thinking,
"I really wish I could trade a position or two right now because I know when the markets open, the price will change significantly."
That Walmart-like availability can also lend to knee-jerk emotional reactions that can snowball in either direction. 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 for DJIA.
Here is a side-by-side comparison over the past week (3-3-18 to 3-10-18). The Dow (due to 20 of the 30 companies it consists of losing money) dropped 1330 points, representing a 5.21% decline.
For cryptocurrency currencies, comparing apples to apples is a little different because a Dow technically does not exist. This is changing, though so many groups are creating their own version of it. The closest comparison at this point is to use the top 30 cryptocurrencies in terms of total market size.
According to coinmarketcap.com, 20 of the top 30 coins were down in the previous seven days. Do you sound familiar? If you look at the entire crypto market, its size dropped from $ 445 billion to $ 422 billion. Bitcoin, considered gold standard equivalent, saw a 6.7% decline over the same timeframe. As for Bitcoin, so go altcoins.
Random or causal? How is it that we saw almost similar results? Were there similar reasons for the game?
Although the price drop appears to be similar, I find it interesting that the reasons for this are very different. I told you before that numbers can be deceiving, so we really need to pull back the layers.
Here are the key news affecting the Dow:
According to USA Today, "Strong wage data have triggered fears of future wage inflation, raising concerns that the Federal Reserve may need to raise interest rates more this year than the three times it originally signaled."
Since crypto is decentralized, it cannot be # manipulated with interest rates. This could mean that higher interest rates in the long run can cause investors to spend their money elsewhere in search of higher returns. It was crypto that could very well come into play.
If that wasn't the interest rate, then what is the cryptocurrency?
This is mainly due to conflicting news from several countries about what their attitude will certainly affect the market. People around the world are worried whether countries will even allow them as a legal investment.
This past week there was some positive news from congressional testimony from Jay Clayton (SEC chairman) and Christopher Giancarlo (CFTC chairman). The sense was that while they would eliminate bad players and ensure AML laws were followed, they also wanted to allow for innovation.
It certainly seems that the connection in similar results between the two worlds is uncertainty.
We all know that markets do not like uncertainty. But uncertainty is fleeting. What causes worry one day can sometimes be resolved overnight. There are also times when the news is so staggering that it hits the market for months and even years.
The key is to search through all this information and decipher what is real and what is not.
Because I am long on both stocks and cryptocurrencies, I think it can be quite rewarding to keep an eye on both sides. The opportunity for profit exists almost every day. This is especially true in crypto, as I have often bought a coin that just dropped 30% over the past day and then dropped another 30% the following, but recovered all this and more within a week.
I would recommend getting as diversified as necessary (this varies with each situation). There are days when one is up and the other down. For a moral boost, it's & # 39; rt to have the opportunity to log in to the account that had the better day. If you have accounts in both worlds, you may want to relate to this.
One thing is for sure, crypto is here to stay and will certainly make investment more interesting.