If Stock Market Crashes, Will It Take Crypto With It?

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image by Cryptowise
Edward Valencia
Aug 4 . 2 min read

As we witnessed in what is now known as black Tuesday, a steep correction in the traditional markets can have a great impact on crypto markets. A small recap, March 12th is known as ‘Black Thursday’ in the crypto space for marking a correction of 40% in a single day.

This was a result of traditional markets also taking a hit. Most probable, speculators needed to free up liquidity as they were obligated to cover positions in the markets. This leads to mass fear due to healthcare and economic uncertainties around the world.

Like the stock market, the crypto market has recovered and continues to break resistance levels. Is this short-lived? Can another crash in the stock market bring down the crypto market as well? My short answer, Yes.

Everything is Correlated when shifting paradigms. A stock market crash has the ability to rattle even the most experienced investor. When things seem at their worst people seek to cut their losses sooner rather than later. Because crypto is a new asset and it’s undetermined whether it’s recession-proof, investors tend to speculate on its short-term rather than its long-term value. We can see from the graph that BTC has been closely correlated with the S&P. The good news is that we can expect a faster recovery in crypto markets like what we saw on Black Thursday, even beating precious metals, with year-to-date returns currently standing at over 55%. This can also be measured by the consumer sentiment provided by the Glassnode Network Index (GNI), both liquidity and overall network health were decidedly bullish with a score of 73/100.

If bitcoin proves to what it claims to be then we will begin to see a decoupling from the stock market and build a stronger correlation to alternative investments like gold and silver.

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