Investors have preferred the equity market for decades, so the factors that influence stock market performance and prices are studied extensively. Crypto stocks are relatively new, so the debatable question is whether the crypto stock market is connected to regular stock market performance. ZenGo X is a leading online resource for readers to enhance their cryptocurrency knowledge.
How do regular stock markets influence the crypto market?
Every market equity or crypto needs participants. Due to market participants like the retail and financial traders, the stock market has a vast liquidity factor. The same retail active stock market investors choose to try their luck in the crypto market. The barriers in the crypto market are small as no PDT rule requires a minimum of $25000 as equity to participate in day trading. Besides no PDT rules, cryptos can be traded 24/7.
These are some appealing factors of cryptos that attract Gen Z and Millennial traders. Cryptocurrency is assumed to serve as a stock trading gateway and vice versa. There is a need for a decentralized wallet to operate in the crypto POS system, crypto exchange, or crypto payment platform.
When the crypto market is hot there are certain sectors and stocks that will also be hot. Certain stocks are highly correlated to the crypto market. For example,
- Blockchain companies
- Crypto miners
- Hardware producers
- Crypto brokerages
- Crypto ETFs
A wide swing in the crypto market affects the price movements of crypto-themed stocks with holdings in the crypto market. For example, if Ethereum breaks out, the company’s stock that mines Ethereum can break out as well.
Some CPU, GPU, and hardware companies move with cryptos as they cell mining rigs components. Some stocks like the crypto ETFs price are volatile. It is based on underlying currency prices. If Ethereum increases by 12% in a day, you can assume that Ethereum’s ETF will have the same move.
Is there a connection between stock and crypto prices?
Some factors that affect the stock and crypto prices are –
- Supply & demand
- Investors sentiments
- Monetary policy
- Economic conditions
- Regulatory changes
- Developmental problems
The above factors reveal that some correlation does exist. For example, companies directly involved with the crypto market via business or investment are connected in one way or another to the price movement of the underlying asset. Nevertheless, there is no crisp and reliable correlation between benchmark stock indices and cryptomarket. Just like S&P 500 index inclines to determine stock market direction, Bitcoin price movement tends to regulate the cryptocurrency direction.
- Sometimes, the crypto market will move in conjunction with the stock markets. Retail traders may flood both the markets to invest in stocks and cryptocurrencies.
- Sometimes, crypto and stock markets may be correlated negatively. Crypto will be perceived as a hedge to the stocks.
In terms of the connection between stock and crypto markets, they do connect at times and diverge sometimes depending on a variety of factors like economic policies, interest rates, regulations, and geopolitical disturbances.