After ten years of traditional bull stock markets, the markets might be facing their first real hard times. The Wednesday session ended with a sharp decline, and investors who had hoped to make some profits will be counting their losses after the tech-heavy Nasdaq Composite Index, for the first time since August 2011, slid down 4.5% in a single day.
Even the speculators are starting to face up to the new bear situation. How deep can it go? Time will tell. What is more interesting for the crypto investors is Bitcoin’s response to the dropping stock markets.
Bitcoin Acting as an Anchor
Unlike before, the slump in the traditional market did not correlate with the crypto markets. While stocks have experienced severe losses over the past two weeks, Bitcoin has shown relative stability.
We can only estimate how Bitcoin might behave in a real crisis; As we know, Bitcoin was invented shortly after the last significant crisis, the subprime, that took place around 2008. Satoshi mentioned it in his first posts regarding the upcoming cryptocurrency.
Mini-crisis and weak economies caused Bitcoin to spike
Bitcoin has always seemed to be the way out of a financial crisis after the cryptocurrency was invented after and following the 2008 subprime crisis, which exposed the shortcoming of banks and financial institutions.
Since then, countries facing national economic crises are increasingly depending on cryptocurrencies to rescue them. Throughout the last few years, citizens of weak economies and with significant inflation like Zimbabwe, Venezuela, and Iran have been rushing to convert their declining in value local currencies to Bitcoin. As a result, the value of Bitcoin spiked. Bitcoin for them was the new gold.
Interestingly, what seems to make economy unstable is the US sanctions on other countries, Trump’s election night, India’s cancellation of the high-value Rupee bills (2016) have made Bitcoin rise and become even more popular.
People become greedy for their money and sell everything
There is an old saying that there are two emotions in the financial market, and those are greed and fear. This is very true, and falling to these emotions could tear a large hole in a trader’s portfolio and the overall market.
When people have just lost significant amounts of their investment capital, their first response is likely to be that they sell their portfolio and get their funds into safe harbor. They fear they won’t have enough to pay their bills. In this situation, it’s less likely that they will buy an asset like Bitcoin, which has normally been very volatile and has also dropped significantly from its all-time high.
What is for sure is that Bitcoin’s current remarkable stability will end shortly. The stock market crisis is likely to cause a drastic move in all other assets, including the crypto markets, to either direction.