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Looking at the Bitcoin graph, and that of the stock market, including the Dow Jones and the S&P 500, you may have noted an interesting similarity. The stock market was growing to new heights rapidly, with even Donald Trump tweeting how it had risen 20 percent since his election. A little before these heights, Bitcoin had also surged up to its all-time high of $20,000 on Dec. 17.
Both markets then started to plunge, first, it was Bitcoin, whose price steadily dropped towards $6,000 before hitting a floor. The stock market fell a lot quicker, but the pattern looked remarkably similar, with them both finding a floor last Monday. The Dow Jones Industrial Average saw its biggest one-day point drop in history on Monday, and the S&P 500 had its worst day since 2011. Questions then started to spring up whether or not there was a correlation between the vastly different assets. And can we predict the future moves?
What happened to the stock
To determine if there is a correlation, one needs to address the reasons why the stock market is down and investors are seemingly selling off. John F. Wasik, behavioral finance Forbes columnist lists a couple of reasons why the Stocks have crashed. He believes that the general stock market was overpriced, and uses a gauge by Robert Shiller, a Yale economics professor, to assess that. He adds that volatility has returned, looking to the VIX index, and this is important in looking for the Bitcoin correlation.
Furthermore, interest rates are rising and there is a belief that inflation may be on its way back. What happens next? According to Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, the computers (which make 90 percent of deals on the stock market) make their turn, calculating that even higher inflation is inevitable.