How Closely Tied Are Crypto and the Stock Market?

By Charlie Custer

Regardless of what kind of investor you are, this has been a rough week. Crypto investors have seen Bitcoin and other coins hit year-long lows. Investors in other markets have been buffeted by the same bearish winds this week, with a market plunge erasing the last of 2018’s gains for many stocks. To some investors, it has been brutal.

The timing begs the question: is this coincidence, or are cryptocurrencies and the stock market following a similar pattern?

In the early days, it’s pretty clear there wasn’t a strong connection between crypto markets and traditional stock markets. Over the first year of Bitcoin’s price history on CoinMarketCap, for example, there’s a long flat period followed by a sharp jump in price beginning in November of 2013, and then a slight but steady decline after that bull market hit its high point. Compare that to the Dow Jones Industrial Average over the same period, and there’s no apparent connection: the Dow showed a steady pattern of steady, rising gains over the course of the year, with no major spike and no corresponding falloff.

(Note: the links above will display recent price history by default; you’ll need to manually input a data range of April 2013 to April 2014 into the charts in each link to see the price history from the relevant period)

But fast forward to the past two years, and you can see that as crypto has grown into the mainstream, its movements seem to be tracking a lot more closely with what’s happening in the broader markets:


There are, of course, some caveats. First and most obviously, Bitcoin and cryptocurrency has been a lot more volatile. Compare the scales on this graph and you’ll see that while Bitcoin and the S&P 500 do frequently rise and fall around the same time, Bitcoin is swinging far more wildly. Second, correlation isn’t necessarily related to causation. Some or all of the apparent similarities between these two charts could be coincidental.

One of the more interesting sections of the chart begins around May of 2018. At that point, both crypto and the stock markets had fallen somewhat from the record highs of earlier in the year. But while the S&P 500 starts to recover, tracking back high enough to eclipse its year-long high point this fall before falling back down more recently, Bitcoin never got the recovery. It did get that fall, though.

As far as what caused the recent collapse in both markets, nobody really knows. Pundits in the world of traditional finance have been blaming the drop on a widespread belief that stocks are overpriced, in tandem with some less-than-impressive returns from big companies and general fears of an economic slowdown on the way. The New York Times noted that in the past few weeks retail stocks have been affected by concerns over higher costs, President Trump’s trade war, and higher wages taking away from profits. The Wall Street Journal pointed to “anxiety about global trade policy and an ongoing rout of technology stocks.”

In the world of crypto, by contrast, the crash has been blamed on fears of an SEC crackdown and the messy Bitcoin Cash fork, as well as weak sales reports from chip-makers Nvidia and AMD, which would mean that fewer people are interested in crypto mining. This follows LongHash’s earlier observation that while the stock market is often affected by real-world events, crypto prices tend to be driven by crypto-related news.

Predicting where the stock market is going to go isn’t any easier than predicting the future price of crypto. But if you’re looking for a silver lining, perhaps it’s that this week at least, crypto investors aren’t alone in their pain.

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