From 2009 through the late 2010s, Bitcoin’s isolation was a mixed benefit. It protected investors against stock market volatility. Since 2017, institutional and individual investors have gained expertise about the stock market and cryptocurrency markets.
How Are Stocks and Cryptocurrencies Valued?
Investors have always preferred stocks. What drives stock market performance and pricing has been extensively studied.
Supply and demand drive prices, as everyone knows. These variables affect stocks and Bitcoin, too. As demand outstrips supply, Bitcoin’s value is growing. Thus, investors are considering alternative cryptocurrencies.
Investor sentiment strongly impacts price. Investor sentiment is investors’ market view. Those expecting price increases are separated from those expecting price decreases. Expectations affect investing decisions.
Economic health impacts investment costs. GDP changes with the economy. Large-scale events can force it into non-natural cycles. In 2020, the COVID-19 pandemic caused a temporary recession and stock market crash.
Monetary policy adjustments like interest rate reductions can lower bond prices and yields, making investors less interested in the asset class since they can think they can earn greater returns elsewhere. Anti-inflationary monetary policy can slow economic growth, affecting stock and cryptocurrency prices.
Political decisions between countries influence the stock market and cryptocurrency prices because import tariffs or other political actions can affect resource availability, labor forces, transportation, and more. For this reason, investors in political-influenced assets are likely to buy and sell based on their own beliefs and views rather than market factors.
Regulation affects cryptocurrency and stock market values. The Chinese government began compelling mining farm owners to return home in 2021. Lately, we saw a mining sector shakeup. June saw Sichuan Province ban them.
By September, China had practically prohibited cryptocurrencies, and bitcoin had plummeted to $32,000 by July.
After miners migrated, bitcoin prices recovered, but not until October.
Cryptocurrencies are merely data. Developer-made and -maintained software controls them. Developer disagreements or software development issues can worry investors. In July 2017, Bitcoin Cash separated from Bitcoin, producing a hard-fork. Investors sold Bitcoin for around $600.
Stocks vs. Cryptocurrencies
Bitcoin’s price steadily rose from late 2016 until 2017, when it exceeded $1,000. Prices rose throughout the year to over $17,000 before stabilizing between $3,000 to $10,000. Media sources highlighted the occurrence. Investors were frightened during the 2020 COVID-19 epidemic because companies and economies were stagnating and closing.
The S&P 500, investors’ main stock index, fell around 110 points during the epidemic as investors moved their money to alternative markets. Stock values doubled after a brief recession in the U.S.
By the time the index of the economy had returned to its previous levels, investors were satisfied that Bitcoin was a new investment vehicle that could generate returns in tough market situations. Bitcoin’s epidemic performance confirmed many firms’ cryptocurrency investments. Bitcoin’s launch drew individual investors, institutions, and businesses.
Bitcoin, which early adopters had traded like a stock on cryptocurrency exchanges for years, became a stock for traders and investors, confirming its asset class status.
Bitcoin gained popularity as an asset class. Brokerages and institutions got regulator approval for Bitcoin-linked ETFs and 401(k)s. Institutions provided familiar tools, making investors more familiar with cryptocurrencies.
Cryptocurrencies fluctuated like stocks in late 2021 & early 2022. The chart below compares Bitcoin (BTC) to the S&P 500 (SPX) & Nasdaq 100. (NDX).
The plots overlap to compare returns over time.
SPX tracks large-cap stocks. Most of the 100 biggest non-financial firms listed on the market are technology companies. NDX assesses their performance. During November 2021 to May 2022, the graph displays SPX, NDX, and BTC prices. Bitcoin’s higher volatility suggests that traders and investors approach it like a stock.
Bitcoin is not tied to stocks, but traders and investors are accidentally constructing a linkage. They trade Bitcoin as they trade other assets.
Cryptocurrency’s price connection with stock might be a coincidence or signal that price levels are tracking equity developments. This impacts investors.
Cryptocurrencies can respond to market influences like stocks since investors seem to regard them like stocks. On can 4, 2022, the Fed raised its target federal money range to 0.75%–1%. Bitcoin dropped to $31,000 on can 5, 2022. SPX fell 150 points and NDX 1,400. Cryptocurrency prices were higher, but the impact was the same.
Investors can momentarily treat cryptocurrencies like stocks. The market is still evaluating the function of cryptocurrencies. When presented, investors ignored them.
Investors were intrigued by bitcoin’s ability to be bought, held, and sold for more. As the market experimented and speculated, prices varied.
Cryptocurrency investors should be careful. Markets and pricing are hard to predict. We also had a lot of predictions about the price of potential coins. Cryptocurrencies can or can not be associated with stocks. Consult a cryptocurrency-savvy financial counselor before investing. They can advise you on your finances and investment ambitions.