After a fairly gentle bull track, the Dow Jones Industrial Average has been weaker for two weeks. Cryptocurrency also suffers from correction. Can there be a link between the two investment worlds?
We need to be cautious when using vague terms such as “emerging markets and falls” when they cross every investment space. The main reason for this is that over the course of its stunning year the "bullish run" has seen gains over 10 times. If you put $ 1,000 in Bitcoin at the beginning of 2017, you'll have earned more than $ 10,000 by the end of the year. Traditional equity investment has never seen anything like that. In 2017, the Dow rose about 23%.
I am very cautious when reviewing data and charts because I realize that you can make the numbers illustrate what you want to say. Encryption also saw tremendous gains in 2017, 2018 saw a equally rapid correction. The point I'm trying to make is that we need to try to be objective in our comparisons.
Many new to the cryptocurrency camp shocked in the recent incident. All they heard was how all these early adopters were richer and bought Lambos. For more experienced traders, this market correction has been very clear due to the sharp rise in prices over the past two months. Many cryptocurrencies have recently made many millionaires last night. It was clear that sooner or later they wanted to get some of these profits off the table.
Another factor I think we really need to consider is the latest addition to Bitcoin futures trading. Personally, I think there are big forces at work here led by the old guard who wants to see a failure encryption. I also see futures trading and the excitement about ETFs as positive steps towards making mainstream trading crypto a “real” investment.
After I said all this, I started thinking, "What if there is some connection here?"
What if the bad news on Wall Street affected crypto exchanges like Coinbase and Binance? Can both of them cause the same day to fall? Or what if the opposite were true and caused more encryption as people were looking for somewhere else to book their money?
In the spirit of not trying to twist numbers and stay as objective as possible, I wanted to wait until we see a relatively neutral stadium. This week is as good as any it represents a period of time when both markets saw corrections.
For those who are not familiar with cryptocurrency trading, unlike the stock market, stock exchanges never close. I have been trading stocks for over 20 years and I know this feeling very well as I was sitting in lazy thinking on a Sunday afternoon,
"I really hope to be able to trade in one or two positions now because I know when the markets will change dramatically."
This Walmart-like availability can also impart emotional reactions that can snow in either direction. With the traditional stock market, people have the opportunity to press the pause button and sleep on their decisions overnight.
To get the equivalent of a one week cycle, I took the last seven days of DJIA's last 5 crypto trading data.
Below is a side-by-side comparison over the past week (3-3-18 to 3-10-18). The Dow (due to 20 out of 30 companies consisting of losing money) fell 1330 points, representing a decline of 5.21%.
For cryptocurrencies, finding a comparison between apples and apples is slightly different because the Dow is technically nonexistent. This is changing even though many groups are creating their own version. The closest comparison at this time is the use of the top 30 cryptocurrencies in terms of total market size.
According to coinmarketcap.com, 20 of the top 30 coins had fallen in the previous seven days. Look familiar? If you look at the entire encryption market, the volume has fallen from $ 445 billion to $ 422 billion. Bitcoin, the gold standard equivalent, saw a 6.7% drop over the same time frame. Bitcoin usually goes, so go to altcoins.
Coincidence or causality? How have we seen almost similar results? Were there similar reasons in playing?
While the price drop looks similar, I find it interesting that the reasons for this are quite different. I told you before that the numbers can be tricky so we really need to pull the layers.
Here are the main news affecting the Dow:
According to USA Today, "strong wage data has raised concerns about future wage inflation, raising fears that the Fed may need to raise interest rates more often this year than the three times it originally cited."
Because encryption is decentralized, it cannot be manipulated by interest rates. This may mean that in the long run, higher rates may lead investors to put their money elsewhere in search of higher returns. This is where encryption can enter well.
If interest rates are not, what caused the crypto correction?
This is mainly due to the conflicting news from many countries about what their position will definitely affect the market. People all over the world are worried about whether countries will even allow them as a legal investment or not.
Last week saw some positive news from congressional testimony to Jay Clayton (president of the SEC) and Christopher Giancarlo (president of CFTC). The feeling was that while they wanted to get rid of bad players and ensure that anti-money laundering laws were followed, they also wanted to allow innovation.
It certainly seems that the relationship in similar results between the two worlds is uncertainty.
We all know that markets don't like uncertainty. But the mystery fades away. What causes anxiety one day can sometimes be resolved overnight. There are also times when news is so amazing that it paralyzes the market for months to years.
The key is to examine all this information and decrypt what is real and what is not.
Because I deal with both stocks and cryptocurrencies, I think that following closely can be very rewarding. The profit opportunity exists almost every day. This is especially true in encryption as I often buy a coin that has only dropped by 30% over the last day and then dropped by another 30% the following, but it has recovered all that and more within a week.
I recommend staying as varied as necessary (this varies depending on each individual's position). There are days when one is high and the other down. For a significant boost, it's a good idea to have the option to sign in to the account that was the best day. If you have accounts in both worlds, you may be able to connect to this.
One thing is for sure, encryption is here to stay and will definitely make the investment more interesting.