Markets are volatile right now. Bitcoin (BTC) is fluctuating in price, and stocks aren’t doing much better. They are down around 20 percent this year. Why are both asset classes rising and falling together? Let’s take a look.
The History of Bitcoin and the Stock Market
During the early days of Bitcoin, stocks and the price of Bitcoin did not move as closely together. For investors, this helped them spread their risk due to Bitcoin moving independently. If stocks fell, that didn’t mean Bitcoin would.
In 2017, that changed. When Bitcoin began to rise and showed signs of becoming one of the best performing assets of the 21st century, some markets began to correlate. When BTC fell, stocks did the same.
But why did this happen?
Bitcoin and the Stock Market: Why The Correlation?
The major reason stems from the growing popularity of Bitcoin. Investors are now regularly buying it and institutions are making large purchases. That’s driving the link between the two assets.
Before 2017, Bitcoin was an alternative investment. It was not a part of regular portfolios. Most retail investors were not interested in it, and it only appealed to a small section of devoted fans.
However, when BTC hit $1,000, things changed. The media started to cover the coin. The public’s interest grew. Prices exploded from $1000 to more than $18,000 during 2017 due to demand.
At the same time, the stock market rallied. The S&P rose by 21.8% that year.
In 2021, the correlation appeared even stronger. BTC and SPX tracked each other precisely.
Becoming an Asset Class
In a risk-off situation, investors sold both Bitcoin and stocks. In a risk-on situation, they bought both.
An Opportunity For Miners
For miners, negative Bitcoin price movements affects profitability. However, big drops have happened before. The recent activity of Bitcoin is a result of investor risk appetites. Investors are dumping risk across the board, including stocks and equities.
Time and time again Bitcoin has shown to be resilient, and miners accumulating now in “business as usual mode” could maximize profits in the future if the price of Bitcoin bounces back like it has previously following a downturn.
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