After a rather great bull run The Dow Jones Industrial Average has actually had a rough couple of weeks. Cryptocurrency also is experiencing a correction. Could there be a correlation between the two investment worlds?
We need to be cautious using unclear terms like "bull and bearish market" when crossing over into each financial investment area. The primary factor for this is that cryptocurrency throughout its fantastic 2017 "bull run" saw gains of well over 10x. If you put $1,000 into Bitcoin at the start of 2017 you would have made well over $10,000 by the end of the year. Standard stock investing has never experienced anything like that. In 2017 the Dow increased approximately 23%.
I'm really careful when reviewing data and charts because I realize that you can make the numbers say what you want them to say. Just as crypto saw enormous 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 recent crash. All they've heard was how all these early adopters were getting rich and buying Lambos. To more experienced traders, this market correction was pretty obvious due to the skyrocketing prices over the last two months. Many digital currencies recently made many folks overnight millionaires. It was obvious that eventually they would wish to take a few of that earnings off the table.
Another aspect I believe we actually 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 fail. I also see futures trading and the excitement around crypto ETFs as positive steps toward making crypto mainstream and considered a "real" investment.
Having stated all that, I started to believe, "What if in some way there IS a connection here?"
What if problem on Wall Street affected crypto exchanges like Coinbase and Binance? Could it trigger them both to fall on the exact same day? Or what if the opposite held true and it caused crypto to increase as people were looking for another place to park their money?
In the spirit of not trying to alter the numbers and to stay as unbiased as possible, I wished to wait up until we saw a fairly neutral playing field. This week is about as good as any as it represents a period in time when both markets saw corrections.
For those not familiar with cryptocurrency trading, unlike the stock market, the exchanges never ever close. I have actually traded stocks for over twenty years and know all too well that sensation where you're relaxing on a lazy Sunday afternoon thinking,
" I truly want I could trade a position or two right now because I know when the marketplaces open the rate will alter considerably."
That Walmart-like accessibility can also lend to knee-jerk emotional responses that can grow out of control in either instructions. With the conventional stock exchange people have a chance to hit the pause button and sleep on their choices overnight.
To get the equivalent of a one week cycle, I took the previous 7 days of crypto trading information and the past 5 for the 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 that it includes losing loan) reduced 1330 points which represented a 5.21% decline.
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 terms of overall market cap size.
According to coinmarketcap.com, 20 of the leading 30 coins were down in the previous 7 days. Noise familiar? If you look at the entire crypto market, the size fell from $445 billion to 422 billion. Bitcoin, seen as the gold basic equivalent, saw a 6.7% decline throughout the exact same time frame. Typically as goes Bitcoin so go the altcoins.
Coincidence or causation? How is that we saw almost comparable results? Were there similar factors at play?
While the fall in rates appears to be similar, I find it intriguing that the factors for this are greatly different. I told you prior to that numbers can be tricking so we truly need to pull back the layers.
Here's the significant news affecting the Dow:
According to USA Today, "Strong pay data sparked worries of coming wage inflation, which magnified worries that the Federal Reserve might require to trek get more info rates more frequently this year than the three times it had initially indicated."
Because 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 cash somewhere else looking for greater returns. That's where crypto might extremely well 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 affects the market. People around the world are anxious as to whether or not nations will even enable them as a legal investment.
This past week saw some beneficial news from the congressional statements of Jay Clayton (SEC Chairman) and Christopher Giancarlo (CFTC Chairman). The sense was that while they wanted to get rid of bad players and guarantee AML laws were followed, they wished to likewise enable innovation.
It definitely appears that the connection in similar results in between the 2 worlds is uncertainty.
All of us understand that markets don't like uncertainty. However uncertainty is fleeting. What triggers concerns one day can sometimes be solved overnight. There are likewise times when the news is so staggering that it paralyzes the marketplace for a number of months and even years.
The key is sorting through all of this info and deciphering what is genuine and what isn't.
Since I am long on both stocks and cryptocurrencies, I believe that keeping a close eye on both can be rather satisfying. The opportunity for earnings 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 essential (this varies with each individual's scenario). 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, possibly you can relate to this.
Something is for specific, crypto is here to stay and will absolutely make investing more fascinating.