The changing stock market trends have always contributed to its varying cost which results in the collapse of price. The volatility faced by the stock market adds to the high risk of its investment. But still, the stock market or equity market is one of the tops in the investment sector with many people getting part of it each day.
At this rate, the invisible correlation between the stock market and cryptocurrency shouldn’t go unnoticed. It has always been a quality of cryptocurrencies to separate itself from other bonding sectors. From its coming to the world in 2009 and up to the late 2010s we can see its separate existence. Bitcoin, one of the most popular cryptocurrencies in the world was a true blessing for investors who wanted to do an investment in an asset class free from the different turmoil that was affected by the stock market.
But since 2017, the changing interests of retail investors have somewhat established an invisible interrelation between the stock price and the cryptocurrency market. This article focuses on both the stock market and the cryptocurrency market and the correlation existing between them.
What is a stock market?
Stock Market or Equity market is the representation of the ownership claims on business by a group of buyers and sellers of the stock also known as shares. There are both public and private stocks. Public stock can be bought by anyone. But the private stocks are not available for everyone in society. Private stocks are traded privately. Mostly, shares of private companies constitute private stocks where investors buy them through various equity Crowdfunding platforms. Through stock exchanges, sellers or brokers sells or buy stocks or other securities.
Stock market and the cryptocurrencies
In the matter of volatility, both the stock market and cryptocurrency share a common ground. The factors that affect the stock market are reflected in the cryptocurrency market too. The prices of cryptocurrency continue and tend to be the same because the investors and traders treat both the cryptocurrency and stock the same.
Over the years, investors are more interested in the stock market than the cryptocurrency market. This preference leads to extensive studies on the factors that affect the stock market exchange processes.
The factors affecting both the stock market and cryptocurrency are;
- Supply and demand: Supply and demand stand as the determining factors that affect every field. Both equity and crypto are also affected by it. For example. There are only about 21 million bitcoins all around the world. The future supply of bitcoin is still in question but the demand for it is increasing day by day. As the demand increases and the availability decreases, the price increases significantly.
- Economic factors: The GDP of the economy raises and lowers over time. There is no stability with it. But macro events like Covid 19 can significantly affect the global economy causing it to fall rapidly resulting in short-term recession and dropping stock prices.
- Monetary regulations: The interest rate is the main factor that affects monetary policies. In such cases, the decreasing interest rate results in a lower yielding of income. Thereby decreasing investors’ interest. To counteract inflation, the monetary policies taken could affect the prices of both Cryptos and the stock market and slows down economic growth.
- Global politics: Politics is always one of the factors that affect the price of both sectors. Political decisions taken between the countries have got a significant impact on both the stock market and the Crypto currency market. Trade restrictions and other actions taken could create turbulence in trading of the Cryptos and stocks. Materials, shipping labour forces and other factors of trading will all get disrupted by such actions. Instability and the volatility created by the political turmoil drastically affect the trading of stocks and Cryptos which results in the gradual loss of investors’ interest.
- Governmental regulations: Since governments too see Crypto and stock as valuable digital assets, less likely is chance to impose strict regulations by the governments on both Cryptos and Stocks. But any rapid and strict move from the government could seriously affect the price of the stocks and Cryptos which results in a drastic fall in its price.
- Investors’ Interests: Interests of investors matter a lot in this field. To attract or allure them first thing to do is to meet their expectations. And it is a significant factor that affects the price. The investors base their outlook based on their viewpoint; some believe that the price will increase and some believe it to decrease.