Over the past couple of years, there have been strong arguments saying that the crypto market either does or doesn’t follow the stock market. Considering crypto is meant to be decentralized and an entity that isn’t affected by anything outside of it, this is strange to hear.
However, if you take a look at a cryptocurrency exchange and then at the stock market, you will see some similarities in how they both move.
What Factors Move Both Markets?
There are multiple factors that drive both the crypto market and the stock market. Demand in crypto affects the stock market, while regulations in the stock market affect crypto, etc.
Demand
Demand is a finally simple concept to understand; when a crypto or stock gains an enormous amount of popularity in a short time, a lot of buying will happen, and the price will begin to rise.
While crypto and stocks aren’t directly connected through demand, we have seen examples of them happening simultaneously. When Tesla announced they would be accepting Bitcoin, both Bitcoin and Tesla stocks saw a huge jump in demand.
Investor Sentiment
Investor & market sentiment usually plays a major role in the price of a stock or crypto. If investors believe a stock has the potential to do well, they will invest early and therefore drive the price up; the same happens in crypto.
However, this doesn’t tend to happen at the same time in both markets, as positive investor sentiment in the health sector doesn’t instantly become positive investor sentiment in a cryptocurrency.
Economic Conditions
When the economic conditions are better or worse, there have been signs of both the stock and the crypto market rising or declining together. This is because potential buyers have more money to spend and therefore tend to invest across the board.
On the other hand, when money is tight, people tend to sell their investments, and therefore you see a drop in both crypto and stock prices.
Geopolitics
Geopolitics has always had an effect on the price of investments. Positive or negative decisions lead to investors buying or selling. With regard to the relationship between crypto and stocks, people tend to sell stocks and buy crypto instead.
Crypto isn’t affected in the same way as stocks and other investments are with regard to supplies, labor prices, etc. Therefore, crypto tends to get a boost when other investments take a dive.
Regulations
Regulations have been a big topic of discussion surrounding crypto. Recently we have seen governments banning crypto mining operations and stopping it from becoming a regulated and popular currency.
As crypto takes longer and longer to become “mainstream,” people are moving back towards stocks instead. Since stocks have so many regulations already, investors also tend to know what they are getting into.
The News
The news is also a huge factor in determining the value of stocks and crypto and the movement of their markets. If there is a story of someone getting rich off Bitcoin, you will undoubtedly see an increase in Bitcoin sales.
Once again, Tesla proved to be a great example of the connection between crypto and stocks through the news. When a company announces a massive investment into a particular crypto, both the crypto and the company stocks tend to see a spike in popularity.
Conclusion
In conclusion, from what we have seen, there tends to be a connection between the crypto and stock markets, but only during certain times. There doesn’t seem to be a constant relationship between the two all the time. Therefore, it is safe to say that, at the moment, there is no definitive relationship between stock market movements and crypto movements.
While both take a hit when the markets are down, and people need the money they have invested, they both tend to grow in different ways and for different reasons. There is also the aspect of budget constraints.
Many regular people don’t have thousands, sometimes only hundreds of dollars, to invest. Their budgets are small, so they want to invest in something they think will grow the fastest.
Over the past few years, it has become more and more clear that people are choosing cryptocurrency over standard investments, hence why we have seen such a boom in cryptocurrency.