There has been a huge rise in the popularity of cryptocurrency. Earlier, when it comes to
investing, traders only had the option of investing in traditional assets such as stocks, bonds,
etc. However, now, the financial sector is evolving. According to the reports, the cryptocurrency
market is projected to grow at a growth rate of 12.5% per year from 2023 to 2030.
Stocks and cryptocurrency are two vital pillars of the financial sector, but are they related?
To answer the question, bitcoin is independent of the stock market; however, there is a
correlation between their prices, but it is dependent on several factors. So, below is a detailed
guide detailing the factors affecting the stock market and bitcoin
What Factors Affect The Stock Market And Cryptocurrency?
Investors always look for options that are profitable for them. The stock market and
cryptocurrency have attracted the attention of traders. However, their rise and fall depends on
several factors:
Market Dynamics
It goes without saying that supply and demand affect the price of products and services, and the
same goes for cryptocurrencies, such as Bitcoin. For example, there are reports that there will
be 21 million bitcoins. So, as you can see, the supply is limited, and due to their popularity,
there is huge demand also. It will definitely affect the price.
Economic Conditions
Economics is measured by GDP, and you will see that it is not constant and it increases or
decreases over time. Also, it follows a cycle of falling and rising, but some unexpected situations
can affect this cycle. For example, when the pandemic hit, the economy saw a down phase,
affecting the stock market prices.
Expectations Of The Investors
You must be wondering how expectations can affect the market. Well, to understand it better,
let’s divide the investors into two segments. The first ones are those who have a belief that the
price will rise, and others believe that it will fall. Based on their expectation, they then make their
decisions. The same goes for cryptocurrency also. After the introduction of bitcoins, it has seen
growth, and investors believe that bitcoin will see huge profits and gains.
The Geopolitics
Geopolitics have a huge effect on the prices of Bitcoin and the stock market. The political
relations and decisions between two nations can affect the supply of resources, transportation
costs, etc. For example, if there is political instability it will result in a fall in the crypto prices or
stocks.
Monetary Policies
Monetary policies affect the rise and decrease in stock and crypto prices. For example, suppose
a government issues a policy, and there is a decrease in the interest rate. When the rate
decreases, this will lead to a lower yield. Any investors aim to gain profit, when they are not
getting it, then they look for alternate options.
How Does Cryptocurrency Affect The Stock Market?
In the above section, you have seen that there are factors that affect the price of both the stock
and crypto markets. These factors are common, such as supply and demand, policies, etc.,
affect the prices of these two markets. Even though there are similarities, it is vital to understand
that there is no direct relation between the stock market and cryptocurrencies. But there is a
correlation!
For example, suppose the stock market is seeing some uncertainty. When this happens, the
investors will be hesitant to invest, so they will look for alternatives in the form of cryptocurrency.
It is not wrong to say that there is some correlation between Bitcoin prices and the stock market.
When the bitcoin price drops, the investors might opt for investment in stocks.
How Are Cryptocurrency And Stock Market Different
You have seen above the common factors affecting the stock market and cryptocurrencies, but
how are they different? Let’s take a quick look.
Assets Types And Ownership
When you invest in stock exchanges, you buy or invest in a company’s stock and shares. It
means that you have become a part of the company; it is like you are now a part owner. How
the company will perform affects the value of your stocks and shares. When you buy crypto, you
are trading in digital currencies, such as bitcoin. It does not show any partial ownership of the
company. It is a digital currency, and that is why its value is subjective.
Market Volatility
When investors hear of volatility, it raises caution among them. However, volatility does not
always mean negative it has a positive impact also. When there is low volatility, it means that
the market is stable, but you might have to wait to see the profits. This is what happens in the
stock market. Regarding cryptocurrency, the market is volatile. When there is a limited supply of
assets, then the increase in demand imposes pressure on the prices. Thus, it increases the
volatility, just as you saw in the case of a fixed supply in bitcoins. In addition, we have also seen a variety
of trading systems like Immediate Edge AI which claims to “use artificial intelligence in order to
mitigate risk and volatility”.
The Regulations And Fees
In the stock market, there are some rules, which are mostly there to protect the traders. It is a
highly regulated market. However, there are intermediaries such as brokers, banks, etc, and
you have to pay some additional fees. For example, the broker may charge their commission,
and the bank also asks you to pay transaction fees. So, you are not getting 100 percent of your
profits.
In crypto exchange, there is no third party. It is between you, the investor, and the crypto
exchange. So, there are no regulations and fees. And since there are no middlemen, you do not
have to pay additional charges.
Conclusion
Summing up, the relationship between the bitcoin prices and the stock market is not linear, and
there are several factors associated with them. Although there is not a direct relationship, a
correlation does exist. Over time, you can see growth in the cryptocurrency market, and
undoubtedly, when bitcoins see a rise, the correlation between these two markets might
become more complex. So, that is why, before making any investment, you must do thorough
research and then only invest. Remember to invest responsibly!
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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
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