All top ten cryptocurrencies and stocks from Dow Jones, S&P 500 and Nasdaq, are in the red on Thursday.
The price of significant cryptocurrencies dived with nearly $16 billion of value being swept out in a matter of three hours.
At the time of this writing, Bitcoin had dropped 4 percent to $6,294, while Ethereum and EOS dived over 10 and 8 percent, respectively, according to the data on CoinGecko. XRP and Tron, which had an overall bullish September, too fell drastically – by over 10 percent each, indicating the previous upsides were only hype-centered. Other coins, including Monero, Dash, Litecoin, NEO, Cardano, and Bitcoin Cash also tanked 7-10 percent in value.
The crypto market was previously showing signs of steady bullish momentum in the wake of new institutional investments. The drop came two days after the International Monetary Fund issued a severe warning over Bitcoin and crypto’s active growth. In its recent report, the UN organization feared that crypto growth would create “new vulnerabilities in the international financial system.”
Nevertheless, the market was able to sustain the so-called bottom predictions. Bitcoin, for instance, is expected to hold its value above $6,000 to remain attractive to miners and institutional investors.
The crypto drop also appeared hours after US stocks suffered a brutal decline on Wednesday. The Dow Jones Index was down 832 points, while the Nasdaq declined 4.1 percent, its worst session in two years.
Among the Dow losers were Nike, Microsoft, Visa, Apple, Boeing, and 25 other components – all of whom plunged more than Bitcoin did. Nasdaq losers also include big names like Netflix, Nvidia, Adobe and Amazon – which also dropped somewhat similar to their cousins in the crypto market.
The stock market as a whole, however, had solid reasons behind the fall: rising interest rates.
The bull market that began in 2009 soon after the Federal Reserve, European Central Bank and the Bank of Japan added more liquidity with their historically low-interest rates and bond purchases began to lose shine after the Fed increased fund rates three times in a year. It alone could make investors expect an increase in interest rates. Thus, the short-term jitters for stocks.
A correlation between Bitcoin and the other three stock indexes can be established in the chart above. It is the second time this year since February when the crypto market is falling in line with the stock market. The last week’s downside in the stock market was the time when funds were moving into Bitcoin. Before that, Bitcoin was showing stability in value as per the general crypto volatility standards around the same time stock market indexes were trending sideways.
The latest drop in crypto and the stock market has created opportunities for short-term investors. Typically, a fund manager who has distributed his risks across a portfolio comprising both mainstream and crypto assets should either sit ideal for a potential reversal, cross-sell from weak assets to strong assets, or just exit its position on a heavy loss. One might see some upside moves in the less-controlled crypto market which could generate higher near-term profits thanks to the volatility. Also, because the market is open 24/7, unlike the Dow Jones, S&P 500 and Nasdaq.
Featured Image from Shutterstock. Charts from TradingView.
Last modified: May 20, 2020 5:09 PM UTC