As you might have guessed by the tagline, I am a big believer in Bitcoin, the digital currency that has been catching the attention of Wall Street and Main Street alike. I’m not the only one. Bitcoin has seen its value skyrocket in 2017, and it’s on pace to surpass the $1,000 mark by the end of the year. But, what if the stock market crashes? That’s an important question, and one that I pondered when the House Financial Services Committee held a hearing on virtual currencies last week.
It is widely expected that Bitcoin will fall in the aftermath of a stock market crash. There have been a number of times in history where stocks have tumbled, usually following a financial crisis. It’s not hard to imagine why, considering the extreme growth we’ve seen over the past few years. Since the beginning of last year alone, the Bitcoin price has increased by over 2,300%.
The Bitcoin price has been on an incredible run. The price of one Bitcoin surpassed $2500 last week, while the entire cryptocurrency market cap surpassed $200 billion, and is now valued at $250 billion. As the price of Bitcoin continues to climb, it’s natural to wonder whether the Bitcoin price will drop if the stock market crashes. If that happens, which cryptocurrencies will fare the best?. Read more about why is bitcoin going down 2021 and let us know what you think.
The year 2009 saw the birth of Bitcoin as well as the commencement of an unparalleled bull run in the US stock market, which has lasted virtually indefinitely since. However, there are constantly murmurings of a crash, and the sounds has lately become louder.
Despite the fact that COVID-19 refuses to go away, stocks continue to rise, aided by extraordinary government backing. Is the speculation of a stock market collapse now that quantitative easing measures are no longer in place justified?
If this is the case, Bitcoin (BTC) may be in for some bad news: There are indications of a significant connection between Bitcoin and equities, it might be claimed. So, what happens if the bottom falls out of the stock market in the United States?
What are the chances of a crash?
Even if crypto isn’t involved, the growing belief that a collapse is on the way has some validity. The rate of inflation in the United States was considerably greater than anticipated in June. Meanwhile, the government proceeded to issue bonds and accumulate additional debt, to the point that the debt limit is now being discussed.
The continuing pandemic relief effort is, of course, the reason for this. However, the government is pouring money into the economy when other indicators, like as stock market values in the United States, suggest that the assistance isn’t required. The demand for meme stocks and cryptocurrencies in the United States is also rising, while the Federal Reserve has previously voiced worries that investors are becoming more irresponsible, citing the desire for these assets as examples.
All of this money pumped into the economy has to run out at some time, leading to understandable fears that a collapse is on the horizon. Cointelegraph writer and full-time trader Michäel van de Poppe thinks that “the predictions of a severe correction are reasonable,” adding:
“The possibilities of a [stock market] crash are growing by the day, as the markets get more overheated – not only in equities, but also in real estate markets. […] The market is entering a bubble phase, fueled by an unprecedented quantity of Fed printing, which is squeezing the middle class.”
Toya Zhang, marketing manager at the AAX exchange, believes that a crash is on the way, but cautions against trying to forecast when it will happen. “Given how frequent stock market falls are, and the fact that the market is slightly overpriced, I believe a stock market downturn is fairly likely,” Zhang added. “However, no one can predict when that will occur.”
For the time being, they are connected, but for how long?
One question is: How linked were the recent market recoveries in both crypto and the stock market back in March 2020? Most stock market analysts were surprised by how fast and furious the recovery was. Although, the fact that the S&P 500 skews heavily to tech companies explains a lot given how quickly the world turned to digital.
In the crypto sector, though, the story was a little different. Most observers were astonished that Bitcoin had reacted similarly to equities in the lack of any other explanation for the crypto market collapse. After all, it was always assumed that BTC was uncorrelated and would serve as a hedge against conventional asset classes like equities and precious metals.
Based on previous experience, history suggests that if the stock markets collapse in 2021, the crypto markets will follow behind. Another possibility is that the stock market collapses and investors quickly transfer their money into cryptocurrency. Even without the benefit of hindsight from March 2020, this seems improbable. Crypto is a famously volatile asset that has yet to be shown as a safe haven in a financial crisis.
What occurs after the collapse, on the other hand, may make for a more fascinating debate about market correlations. What if the stock markets don’t move into automatic recovery mode this time? Given that the pandemic impact has already been priced into the markets, and there is much less uncertainty than there was in March of last year, this scenario is a fair assumption.
What would BTC do if the stock market in the United States remained flat or even fell? The most convincing assumption behind the “Bitcoin is uncorrelated to stocks” thesis is that Bitcoin has its own market cycles — tied to halving — that govern its price fluctuations much more powerfully than any external economic factors. By looking at history through this lens, it’s possible that BTC would have reached new all-time highs regardless of whether the stock markets rebounded after March 2020.
Prices have been fighting to remain inside the boundaries of late, even against PlanB’s ever-reliable stock-to-flow BTC pricing model. Nonetheless, the recent rise indicates that the model has maintained, and prices are now indicating a strong likelihood of a long-term recovery. So, even if turbulence in the stock markets causes havoc in crypto, there is evidence that the BTC market cycles will eventually reclaim their ostensibly iron-clad price control.
A battle between opposing troops
There is no evidence to indicate that if there is a short-term collapse, the Bitcoin price will not follow. If this happens in 2021, what follows may be a battle between Bitcoin’s market cycles and the consequences of a protracted economic slump.
However, if the former’s impact can even somewhat exceed the latter’s, Bitcoin will become more appealing as a safe haven asset (in the absence of many other alternatives). If everything else is falling, BTC just has to keep its value to keep investors interested. But what if Bitcoin’s halving cycle is able to completely offset the impact of a protracted market downturn? In that scenario, BTC may become one of the few investments that can provide substantial returns even if the market is in a slump.
Sean Rach, co-founder of hi, a non-profit blockchain services company, thinks that crypto will eventually appeal to alpha hunters. “Growing discontent with the financial system, as well as the history of all fiat currencies,” Rach said, “means that the hunt for alternatives remains a positive factor for the development of the crypto markets.” In the meanwhile, Mati Greenspan, the founder and CEO of Quantum Economics, told Cointelegraph:
“Over the course of the crypto asset class’s brief existence, the token market has generally tracked other risk assets such as equities and commodities. They have a strong reaction to central bank money printing. Still, since crypto is still in its early stages of development, there is a lot more potential for expansion. So, even if stocks reach a peak, I don’t believe it will have a long-term effect on digital assets.”
Finally, it’s important to realize that crashes are just temporary. They may be unpleasant, but the long-term perspective is where things become fascinating. Assume that equities remain in a long-term bear market while the macroeconomy improves. In that scenario, if crypto bottoms out, it may easily turn into a chance for investors to get a good deal. As a result, although a short-term connection may be difficult to prevent, crypto has a good possibility of outperforming the markets in the long run.
Bitcoin has gone up in price, even though the stock market has been plunging. Many people think that Bitcoin is a bubble, and that when the stock market crashes, Bitcoin will fall too. But the current Bitcoin bubble is based on the belief that Bitcoin has no value. If the stock market crashes, the value of Bitcoin will fall too. But the stock market crashes because the world economy is slowing down, which makes the stock market less valuable. So, Bitcoin could fall in value too, but probably not as much as the stock market.. Read more about when crypto market will go up and let us know what you think.
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