- For the first 10 years after the dawn of cryptocurrency, there was little correlation between the price movements seen in cryptocurrency markets and the movements seen in other markets
- However, as cryptocurrencies became more widely adopted by your everyday retail investor, a relationship has seemingly begun to appear with the S&P 500, the NASDAQ 100, and big tech stocks
An observable relationship between the crypto market and other financial markets could be a useful signal for making a trade. But does Crypto move in conjunction with any other financial assets, with either a positive or negative relationship?
For the first 10 years after the dawn of cryptocurrency, there was little correlation between the price movements seen in cryptocurrency markets and the movements seen in other markets. The ecosystem was just too new, too novel, and had too little participants for a significant relationship with other financial markets to be seen.
However, as cryptocurrencies became more widely adopted by your everyday retail investor, and offered by legacy financial institutions like Blackrock, and even making their way onto the books of some of the world’s largest publicly traded companies, a relationship has seemingly begun to appear with the S&P 500, the NASDAQ 100, and big tech stocks.
For example, when the US Federal Reserve lowered interest rates in reaction to the 2020 Covid lockdowns, stock markets (and in particular, tech stocks) and cryptocurrencies simultaneously rallied on the back of cheap credit and money printing. Consequently, many of the same investors that were propelling stocks to new heights were also participating in crypto investing, propelling these assets to record highs also. This was partly due to access to crypto markets becoming as easy to access as the stock market thanks to the likes of Robinhood which had both assets available on its mobile trading app. Similarly, when the Federal Reserve moved to raise interest rates to fight high inflation in 2022, stock markets reacted negatively (as expected). Curiously, Bitcoin and other cryptocurrencies were also negatively impacted, dispelling a short-held notion that they might decouple from stocks and begin to act as a haven from inflation. Alas, this was not so, and cryptocurrency continued acting like tech stocks, with both assets’ classes being some of the worst performing in 2022, with retracements from peaks exceeding 50% in a lot of cases.
