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The sharp fall and rebound of cryptocurrency prices this week has spread to traditional asset classes, which may remind people of what might happen if more severe turbulence occurs.
The price of some government bonds rose on Wednesday, while the US benchmark S&P 500 index futures fell, and oil prices also fell. Earlier there were signs that China was preparing to crack down on digital tokens and Bitcoin prices plunged 30%. The yen-a currency that is often needed in times of stress-has also risen suddenly.
A few hours later, Bitcoin rebounded sharply. However, it is unusual for these regulations to attract the attention of mainstream market participants.
Rabobank interest rate analysts Richard McGuire and Lyn Graham-Taylor wrote in their regular report the following day: The driving force seems to be the sudden plunge of Bitcoin.” “So here we are. Even in such a solemn institution as Rabo Rates Daily, it was finally forced to put cryptocurrency first.
The two wrote, “It seems difficult to imagine how there is a direct connection between Bitcoin’s maneuver and movements in global financial markets.”
Usually, crypto prices are driven by obscure factors such as Bitcoin enthusiast Elon Musk, whose electric car company Tesla has purchased a large number of tokens. The price changes of highly speculative cryptocurrencies rarely impact the regulated and established markets.
But this may start to change.
On Friday afternoon, after China’s Vice Premier Liu He reiterated Beijing’s determination to curb cryptocurrency mining and trading, cryptocurrencies fell sharply again.
The news dropped the value of Bitcoin by 12%, the value of Ethereum by 20%, and the value of Dogecoin by 18%. The sell-off seems to have flowed into the US stock market, and the high-tech Nasdaq market fell within the last hour of trading.
At Barclays Bank, credit analyst Soren Willemann also pointed out that the turmoil in Bitcoin caused European corporate bonds to plummet. “The direct impact is hard to imagine, but to some extent, the crypto correction is associated with the weakness of modern technology companies’ stocks (especially Tesla’s Bitcoin holdings), which is vital to European Credit, because we Market is hard to ignore [S&P 500] Weaknesses,” he said. “In other words, we will be buyers of any decline caused by encryption technology. “
As regulators around the world increasingly bypass the cryptocurrency market, mainly to strengthen consumer protection, the issue of Bitcoin’s relevance to the broader market has become more urgent among investors.
There is a theory that if the price of Bitcoin plummets, this could cause a major blow to the household finances of retail investors, dispelling the claim that active consumers can continue to support the stock market.
In addition, some funds and family financial institutions have invested funds in cryptocurrencies, triggering a surge in interest from investment banks seeking to promote demand. From a marginal point of view, the sharp decline in cryptocurrencies may also weaken the market’s interest in high-risk bets.
In contrast, the upsurge of crypto trading coincided with the decline in trading volume on the stock trading platform favored by traders. Therefore, if those retail investors want to return to the stock market, then any sustained large cryptocurrency decline may trigger a rebound in the riskier part of the stock market.
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