Based on the crypto market dynamics in the last few days, which is still in a bearish space – affected by the Fed’s policies – this turmoil and pressure cannot be avoided due to the increasingly correlated US capital market with the crypto market. However, this situation was an excellent opportunity for accumulation. Check Bitcoin Investor to get a piece of detailed information about bitcoin trading.
Some day traders should be happy when the price of Bitcoin and several other cryptocurrencies seems to be recovering since entering the US$ 33 thousand regions on January 24, 2022, then shooting up to the US $ 38 thousand two days later. “This spike was predictable and natural in general; Bitcoin is still in bearish territory. It is called high volatility,” Triv said in his publication.
Throughout 2021, the positive correlation between the US capital market and the crypto market is getting higher and reaching an all-time high. If the capital market is under pressure, it will also impact the crypto market. The data from the IMF can be a standard guide. By Bloomberg, similar data can also be found.
The Goldman Sachs study
The latest study by Goldman Sachs further confirms the data today. The investment firm even mentioned that the more demand for cryptocurrencies, the more significant the correlation with the traditional (stock) market.
Crypto’s valuation has indeed increased due to this demand. Still, it is possible to increase its correlation with other financial market variables. “So, crypto’s asymmetrical advantage will be reduced in the capital market (traditional assets),” explained Triv.
In other words, large short-term spikes in the price of large-market cryptocurrencies may become less frequent in the future. As a result, it may reduce the profit portion of traders with small capital but still profitable in the long run.
“Surely you ask why this can be the case. The answer is due to the increasing popularity of crypto in the public eye, not only a matter of higher returns than other asset classes but also technologically,
Namely, blockchain, NFT, DeFi is a disruption to conventional businesses. This is described as a new business opportunity in the future that is cheaper,” said Triv.
This advantage is, of course, difficult not to be loomed by well-known companies. They finally support. Banks are increasingly using blockchain for cross-border trading contracts. Several central banks are also using it, albeit partially, in developing their digital currencies.
Change of flow on conventional business
Many venture capital companies, which previously spent money on traditional financial technology, recently invested in the crypto market. The cheap dollar pushed the stock market up, as more and more people were spending money on the asset. Then, of course, the crypto market also splashed. That’s where inflation comes from, reinforcing the narrative that the more fiat money in circulation, the more crypto value will also increase.
First, it is a derivative product. Then, when the product enters the capital market through an ETF, the correlation between the capital/stock/security market and the crypto market is complete.
“Then, is this bad? Not really; even if you borrow the history of gold as a commodity and ETF, the price of gold is relatively stable and has increased over a long period. It’s just that the difference is that the context of gold is in the conventional economic stage and its original form is physical. While the crypto market is relatively playing on technology and disguised in privacy, a peer-to-peer, decentralized model where regulation is relatively unable to control it fully,” explained Triv.
And, at the same time, in the following years, crypto-related regulations will be increasingly tightened, and all countries will play the same drum and simultaneously, as directed by the IMF, World Bank, and FATF. “Above all, blockchain technology and crypto assets will continue to be with us here. So the correction is natural as a clear sign that he is healthy. It just takes patience and foresight,” said Triv.
For beginners, one thing is no less critical than novice investors need to know about Bitcoin. Bitcoin is one of the current investment instruments that has performed best in the last few years. Crypto market is getting connected with capital market, threat, or opportunity?
Story by Jean Nichols