After a good bull race, the Dow Jones Industrial Average has had a couple of weeks or so. The cryptocurrency is also experiencing a correction. Could there be a correlation between the two investment worlds?
We need to be careful using vague terms such as “bullish markets” when entering each investment space. The main reason for this is that the cryptocurrency throughout its incredible “bullfight” of 2017 experienced gains of well over 10 times. If you put $ 1,000 in Bitcoin in early 2017, you would have earned well over $ 10,000 by the end of the year. Traditional equity investing has never experienced anything like it. In 2017, the Dow rose about 23%.
I’m very careful when reviewing data and graphs because I realize you can make the numbers say what you want them to say. Just as cryptography made huge gains in 2017, in 2018 it has experienced an equally rapid correction. What I am trying to say is that we must try to be objective in our comparisons.
Many who are new to the field of cryptocurrencies are surprised by the recent fall. All they have heard is how all these early adopters got rich and bought Lambos. For more experienced traders, this market correction was quite evident due to prices skyrocketing over the last two months. Many digital currencies recently made many people millionaires overnight. It was obvious that sooner or later they would want to take some of these benefits off the table.
Another factor that I think we really need to keep in mind is the recent incorporation of Bitcoin futures trading. Personally, I think there are important forces working here led by the old guard who want to see cryptography fail. I also see futures trading and enthusiasm for ETF cryptocurrencies as positive steps towards transformation into traditional cryptography and considered a “real” investment.
That said, I started thinking, “What if somehow there’s a connection here?”
What if the bad news on Wall Street affected cryptocurrencies like Coinbase and Binance? Could it make them both fall on the same day? Or what if the opposite were true and caused an increase in cryptography as people searched for another place to park their money?
In the spirit of not trying to distort the numbers and keep me as objective as possible, I wanted to wait until we saw a relatively neutral playing field. This week is as good as any other, as it represents a period of time in which both markets saw corrections.
For those unfamiliar with cryptocurrency trading, unlike the stock market, exchanges never close. I have changed stocks for over 20 years and I know all too well this feeling you are sitting on a lazy Sunday afternoon thinking,
“I would really like to be able to change one or two positions right now because I know when the markets will open the price will change significantly.”
This Walmart-like availability can also lead to emotional reactions that can cause snowballs in any direction. With the traditional stock market, people have the opportunity to press the pause button and sleep in their decisions at night.
To get the equivalent of a one-week cycle, I took the last 7 days of cryptocurrency trading data and the last 5 for the DJIA.
Below is an elbow to elbow comparison from last week (3-3-18 to 3-10-18). The Dow (due to 20 of the 30 companies that consists of losing money) decreased 1330 points, which represented a decrease of 5.21%.
For cryptocurrencies, finding an apple-to-apple comparison is a little different because technically there is no Dow. This is changing, although many groups are creating their own version of it. The closest comparison right now is to use the top 30 cryptocurrencies in terms of total market capitalization size.
According to coinmarketcap.com, 20 of the top 30 coins had fallen in the previous 7 days. Does it sound familiar to you? If you look at the entire cryptography market, the size dropped from $ 445 million to $ 422 million. Bitcoin, seen as the equivalent of the gold standard, experienced a decrease of 6.7% over the same period of time. Usually, according to Bitcoin, you also go with altcoins.
Coincidence or causality? How come we’ve seen almost similar results? Were there similar reasons at play?
While the fall in prices seems similar, I find it interesting that the reasons for this are very different. I’ve told you before that numbers can be tricky, so we really need to remove the layers.
Here is the main news affecting Dow:
According to USA Today, “strong wage data sparked fears of upcoming wage inflation, which intensified concerns that the Federal Reserve may have to raise rates more often this year than the three times it had originally pointed out.”
Since cryptography is decentralized, it cannot be manipulated by interest rates. This could mean that in the long run higher rates could lead investors to leave their money elsewhere looking for higher returns. This is where cryptography might come into play.
If it weren’t for interest rates, what caused the cryptographic correction?
It is mainly due to the conflicting news from various countries about what their position will undoubtedly affect the market. People all over the world are not worried about whether countries will even allow it as a legal investment.
Last week he received some favorable news from Congressional witnesses Jay Clayton (president of the SEC) and Christopher Giancarlo (president of the CFTC). The feeling was that while they wanted to eliminate bad players and ensure that LMA laws were followed, they also wanted to allow for innovation.
Undoubtedly, it seems that the connection in similar results between the two worlds is uncertain.
We all know that markets don’t like uncertainty. But uncertainty is ephemeral. What causes worries one day can sometimes be resolved overnight. There are also times when the news is so startling that it paralyzes the market for several months and even years.
The key is to examine all this information and decipher what is real and what is not.
Since I’ve been in both stocks and cryptocurrencies for a long time, I think keeping them well-attended can be very rewarding. The profit opportunity exists almost every day. This is especially true in cryptocurrencies, as I have often bought a currency that has just dropped 30% over the last day and then dropped another 30% the next, but has recovered all of that and more in a week.
I would recommend staying as diverse as necessary (this varies depending on the situation of each individual). There are days when one is up and the other down. To boost morale, it’s good to have the option to sign in to the account that had the best day. If you have accounts in both worlds, you may be able to relate to them.
One thing is for sure: cryptography is here to stay and will certainly make the investment more interesting.