Based on the crypto market dynamics in the last few days, which is still in a bearish space – affected by the Fed’s policies – this turmoil and pressure cannot be avoided due to the increasingly correlated US capital market with the crypto market. However, this situation was an excellent opportunity for accumulation. Therefore, someday traders should be happy when the price of Bitcoin and several other cryptocurrencies seems to be recovering since entering the US$ 33 thousand regions on January 24, 2022, then shooting up to the US $ 38 thousand two days later. “This spike was predictable and natural when Bitcoin is generally still in bearish territory. It is called high volatility,” Triv said in his publication. Visit the bitcoin-profitapp for more information on bitcoin trading.
Throughout 2021, the positive correlation between the US capital market and the crypto market is getting higher and reaching an all-time high. If the capital market is under pressure, it will also impact the crypto market. The data from the IMF can be a standard guide. By Bloomberg, similar data can also be found.
The investment firm even mentioned that the more demand for cryptocurrencies, the more significant the correlation with the traditional (stock) market.
Crypto’s valuation has increased.
Crypto’s valuation has indeed increased due to this demand. Still, it is possible to increase its correlation with another financial market. “So, crypto’s asymmetrical advantage will be reduced about the capital market (traditional assets),” explained Triv. In other words, large short-term spikes in the price of large-market cryptocurrencies may become less frequent in the future. As a result, it may reduce the profit portion of traders with small capital but is still profitable in the long run.
“Surely you ask why this can be the case. The answer is due to the increasing popularity of crypto in the public eye, not only a matter of higher returns than other asset classes but also technologically, namely blockchain, NFT, DeFi is a disruption to conventional businesses. This is described as a new business opportunity in the future that is cheaper,” said Triv. They finally support. Banks are increasingly using blockchain for cross-border trading contracts. Several central banks are also using it, albeit partially, in developing their digital currencies.
The magnitude of the impact of this change is the flow of capital from the conventional business world into the crypto market, which start-ups or start-ups mainly inhabit. Recently, more and more venture capital companies, which previously spent money on traditional financial technology, are turning to blockchain. For example, a16z, a venture company that invested heavily in Facebook (now Meta Platform), is increasingly gaining investment funds to be ‘turned’ into crypto-blockchains.
More and more new companies are entering the capital market to make it easier to get funds from the public, not directly through these venture companies. This enormous flow of capital from companies to the crypto market is an important reason why stock market shocks have rocked the crypto market. So, when the Fed is indicated to immediately raise its benchmark interest rate and later conduct a tapering, the capital market crashes because this is the business world that is directly connected to monetary policy. From here, the crypto market also rolled.
The cheap dollar pushed the stock market up, as more and more people were spending money on the asset. Of course, the crypto market also splashed. That’s where inflation comes from, reinforcing the narrative that the more flat money in circulation, the more crypto value will also increase. First, it is a derivative product. Then, when the product enters the capital market through an ETF, the correlation between the capital/stock/security market and the crypto market is complete.
“Then, is this bad?
Not really; even if you borrow the history of gold as a commodity and ETF, the price of gold is relatively stable and has increased over a long period. It’s just that the difference is that the context of gold is in the conventional economic stage and its original form is physical. While the crypto market is relatively playing on technology and disguised in privacy, peer-to-peer, decentralized model where regulation is relatively unable to control it entirely,” explained Triv.
Thus, crypto still has a long future. Contemporary dynamics are needed as a form of balance. Crypto-value products in the derivatives market and ETFs in the capital market aim to reduce the volatility of the crypto itself. The bottom line is that crypto will become less risky to reach more capital.
And, at the same time, in the following years, crypto-related regulations will be increasingly tightened, and all countries will play the same drum and simultaneously, as directed by the IMF, World Bank, and FATF. “Above all, blockchain technology and crypto assets will continue to be with us here. So the correction is natural as a clear sign that he is healthy. It just takes patience and foresight,” said Triv.