After a rather good bull run The Dow Jones Industrial Average has had a rough couple of weeks. Cryptocurrency also is experiencing a correction. Could there be a connection between the two investment worlds?
We need to be careful using vague terms like "bull and bear markets" when crossing over into each investment space. The main reason for this is that cryptocurrency over the course of its incredible 2017 "bull run" saw gains of well over 10x. If you put $1,000 into Bitcoin at the beginning of 2017 you would have made well over $10,000 by the end of the year. Conventional stock investing has never skilled anything like that. In 2017 the Dow increased roughly 23%.
I'm truly cautious when evaluating data and charts since I recognize that 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 quick correction. The point I'm trying to make is that we need to try to be objective in our comparisons.
Many that are new to the cryptocurrency camp are shocked at the current crash. All they have actually heard was how all these early adopters were getting abundant and purchasing Lambos. To more knowledgeable traders, this market correction was quite apparent due to the increasing rates over the last 2 months. Numerous digital currencies just recently made many folks overnight millionaires. It was obvious that quicker or later they would wish to take some of that profit off the table.
Another factor I think we really require to think about is the current addition of Bitcoin futures trading. I personally think that there are significant forces at work here led by the old guard that desire to see crypto stop working. I also see futures trading and the excitement around crypto ETFs as positive steps toward making crypto mainstream and considered a "real" financial investment.
Having stated all that, I started to believe, "What if in some way there IS a connection here?"
What if bad news on Wall Street impacted crypto exchanges like Coinbase and Binance? Could it cause them both to fall on the same day? Or what if the opposite were true and it caused crypto to increase as individuals were trying to find another location to park their loan?
In the spirit of not attempting to skew the numbers and to remain as objective as possible, I wished to wait until we saw a relatively neutral playing field. Today has to do with as excellent as any as it represents a duration in time when both markets saw corrections.
For those not knowledgeable about cryptocurrency trading, unlike the stock market, the exchanges never close. I've traded stocks for over 20 years and understand all too well that sensation where you're relaxing on a lazy Sunday afternoon thinking,
" I truly wish I could trade a position or more right now due to the fact that I understand when the marketplaces open the cost will change significantly."
That Walmart-like availability can also provide to knee-jerk psychological responses that can snowball in either direction. With the traditional stock exchange individuals have a opportunity to strike the pause button and sleep on their decisions overnight.
To get the equivalent of a one week cycle, I took the past 7 days of crypto trading information and the previous 5 for the DJIA.
Here is a side by side contrast over the past week (3-3-18 to 3-10-18). The Dow (due to 20 of the 30 companies that it consists of losing loan) reduced 1330 points which represented a 5.21% decrease.
For cryptocurrencies finding an apples to apples comparison is a little various due to the fact that a Dow does not technically exist. This is changing though as many groups are developing their own variation of it. The closest contrast at this time is to use the top 30 cryptocurrencies in regards to overall market cap size.
According to coinmarketcap.com, 20 of the leading 30 coins were down in the previous 7 days. Sound familiar? If you look at the entire crypto market, the size fell from $445 billion to 422 billion. Bitcoin, viewed as the gold basic equivalent, saw a 6.7% reduction during the same amount of time. Usually as goes Bitcoin so go the altcoins.
Coincidence or causation? How is that we saw nearly comparable results? Existed similar factors at play?
While the fall in prices appears to be comparable, I discover it fascinating that the reasons for this are vastly various. I informed you before that numbers can be deceiving so we really require to draw back the layers.
Here's the major news impacting the Dow:
According to U.S.A. Today, "Strong pay information stimulated fears of coming wage inflation, which heightened concerns that the Federal Reserve might need to hike rates more typically this year than the 3 times it had originally signified."
Considering that crypto is decentralized it can't be manipulated by interest rates. That might indicate that in the long run higher rates could lead financiers to put their loan somewhere else looking for greater returns. That's where crypto might effectively come into play.
If it wasn't rates of interest, then what triggered the crypto correction?
It's primarily due to conflicting news from numerous nations as to what their stance will be definitely impacts the market. Individuals around the world are uneasy as to whether nations will even allow them as a legal financial investment.
This previous week saw some favorable news from the congressional testimonies of Jay Clayton (SEC Chairman) and Christopher Giancarlo (CFTC Chairman). The sense was that while they wished to get rid of bad players and make sure AML laws were followed, they desired to also permit development.
It certainly appears that the connection in similar outcomes between the two worlds is unpredictability.
We all know that markets do not like unpredictability. But unpredictability is short lived. What causes issues one day can in some cases be dealt with overnight. There are likewise times when the news is so shocking that it immobilizes the market for numerous months and even years.
The key is sifting through all of this details and analyzing what is real and what isn't.
Due to the fact that I am long on both stocks and cryptocurrencies, I believe that keeping a close eye on both can be quite satisfying. The opportunity click here for profit exists almost everyday. This is specifically real in crypto as I've typically purchased a coin that just dropped 30% over the previous day and then fell another 30% the following, but gained back all of that and more within a week.
I would suggest staying as diversified as needed (this varies with each person's circumstance). There are days when one is up and the other down. For a morale increase, it's good to have the option of logging into the account that had the much better day. If you have accounts in both worlds, perhaps you can connect to this.
Something is for certain, crypto is here to remain and will certainly make investing more interesting.