The year 2020 has proven to be testing for the whole world. The global economy has suffered at the hands of several calamities, from Australian Bushfires to the COVID-19, a global pandemic which has directly affected all local and global markets.
Among these affected markets are the stock markets and the intangible markets of cryptocurrency.
Recent Trends in Global Stock Market
The global stock market was doing well, as prior to the widespread of the COVID-19 the largest stock exchanges in the world such as the New York Stock Exchange (NYSE) and London Stock Exchange were hitting all time high points in their respective indices. However, following the global widespread of the COVID-19, and its ripples affecting every sector of the global economy, these exchanges begin to lose points on their respective index, as the share prices of the stocks fell.
During the peak of the Coronavirus cases, both the USA and UK hit the lowest points in their indices. NYSE fell down to roughly 9000p in March 2020, first time after falling to the same threshold back in 2013. The Financial Times Stock Exchange 100 (FTSE-100) also slumped to its lowest of approximately 5000p on the index in 9 years.
The stock markets had just recovered after adapting to the new SOPs to cope with the Coronavirus, when the global authorities such as the World Health Organization have pointed towards the second global wave of the coronavirus. This would cause nations to reinforce lockdowns, and hence will disturb the economic activity and hence the financial markets again, as shown by the immediate downsloping trend in the global stock exchange markets.
Recent Trends in BTC Market
According to the ‘Coindesk BTC Price Index’, the bitcoin’s price at the beginning of the year 2020 was around $7,000. However, it rose steadily until it reached a 5-month high price point of $10,364 during February, 2020. As the COVID-19 crisis escalated and lockdowns were imposed, all global commercial activity came to a halt, affecting both the tangible currencies as well as the intangible cryptocurrencies such as the bitcoins.
The bitcoins began to decline from February and reached a one-year low price point of $4,944 during March. According to Coindesk – a news site featuring bitcoins and digital currency news and analysis, this fall in bitcoin prices could be characterized by an immediate demand of liquidating the bitcoins in fear of prevailing market risk., Investopedia, world’s leading source of financial content on the web, also identified multiple other factors which cause the price volatility in bitcoins, e.g. any bad news (COVID-19 crisis in this case) hurts the adoption rate of bitcoins.
Also, people expecting higher inflation rates in their countries due to the global crisis voluntarily stayed away from investing in bitcoins. Uncertainty of bitcoin’s future value and the wobbling perceived value of bitcoins were identified as additional factors which caused hesitation among people to invest in bitcoins and henceforth caused decline in BTC prices.
Cointelegraph and Forbes Review on Stocks & Bitcoin Correlation
The bitcoin prices have been showing a great degree of correlation with traditional markets this year, and on July 9 the correlation between the S&P 500 and the bitcoin index reached a new all-time high. Data from Skew., the leading provider of professional Data Analytics and Trade Execution services for cryptocurrency markets, showed a correlation coefficient of as high as 0.78 during July 2020.
The correlation between the BTC and the Stocks increased particularly during March – the peak of initial phases of the coronavirus. Cointelegraph conducted a research and reported that the similarity of trends between the two could end toward the end of the year 2020. However, it seems to be happening the exact opposite, mainly due to the persistence of the coronavirus throughout the world. Interested in learning more about bitcoin market correlation? visit BitQT, this platform predicts all fluctuations.
Although the increasing correlation between the bitcoin and the stocks signifies the asset class maturing, the nature of unregulated Bitcoin derivative products makes it susceptible to increased fluctuations.
Analysts have also suggested that an increase in the bitcoins and equity market correlation may also signal an increased representation across a broader range of traditional portfolios and this might also signify an increased rate of adoption of BTC.
Verdict
The increasing correlation between the BTC and equity markets can be alarming for the investors, particularly due to an expected slump in the stock market. However, crypto-analysts believe that the key to survive this uncertain time is by holding on to the portfolio and buying the dip and to avoid hastily liquidating your BTC. Analysts also recommend using online trading platforms to reduce the risk of human error and potential losses.
