As an alternative “store of value” to traditional investment opportunities like stocks and bonds, theoretically cryptocurrency markets could have benefited from the massive share sell-off in recent days. This didn’t happen but that doesn’t mean it won’t work this way in future.
On Wednesday, October 10, 2018, the Dow fell 3.2 percent and the Nasdaq 4 percent, the worst day of trading since the Brexit referendum in 2016. Technology stocks were affected most.
For the stock markets, rising interest rates in the U.S and globally could be causing concern, the threat of inflation and trade woes are adding to this, and stocks are getting competition from safer bonds. Treasuries returns were up to 3.24 percent, the highest on Wednesday for the first time in seven years.
Safer bonds are making technology stocks look more expensive. Technology stocks could also have oversold.
Money is Moving out of the Stock Markets
But, where is it going? If investors are nervous about warnings of interest rate hikes, inflation, and the threat of recession, they are likely looking for alternative investments. Treasuries and bonds, as well as savings and other less volatile products, are suitable for investors with low-risk tolerances—those who can’t afford to lose money. Other investors choose to stick with fiat.
Gold markets also tend to perform better in times of uncertainty and gold has seen an increase in price and trading suddenly. Gold investments see peaks and troughs but they are relatively stable.
Cryptocurrencies have been likened to gold as an alternative investment and a store of value. Bitcoin’s supply is limited, like that of gold, so as the amount available in the market falls, Bitcoin’s price should continue to rise following the rules of supply and demand.
Investors with high-risk tolerances might look to new markets they can make a quick buck from. Cryptocurrency could be one such market.
But, it Didn’t go to Cryptocurrency This Time
However, this week also saw $13 billion wiped off the cryptocurrency market. All the major coins have been affected with, at the time of writing, Bitcoin losing nearly 5 percent and Ethereum, XRP and Bitcoin Cash over 10 percent in the last week.
Some are blaming the stock markets for setting a trend, but according to reports, a new Bitcoin whale also surfaced and sold 22,100 Bitcoin worth $138 million.
Considering the performance of the cryptocurrency markets so far this year, it’s not really a surprise they didn’t benefit from the cash coming out of shares. If cryptocurrency prices were rising in the same way as 2017 then it would have been more likely.
With cryptocurrency still being such a new market, it’s likely those selling shares in stocks are not yet ready to take the leap to invest in cryptocurrency.
Had the timing been different and had cryptocurrencies already received much-awaited news, like that of more healthy regulatory frameworks, a bitcoin-based ETF approval, or more institutional adoption, things could have been different this week.
The cryptocurrency markets are still in their infancy, with a long way to go to complete acceptance and market maturity. Next time share prices plummet, the money may well go to cryptocurrency as these new financial mechanisms gain in popularity. Cryptocurrency proponents are still sure they will.
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