Is there a relationship between Dow Jones and cryptocurrency?
After experiencing a good bull market, the Dow Jones Industrial Average has gone through difficult weeks. Cryptocurrencies have also been revised. Is there a relationship between the two investment worlds?
When entering various fields of investment, we need to be careful to use ambiguous terms such as "bull market and bear market". The main reason is that cryptocurrencies have risen more than 10 times during the amazing “bull market” in 2017. If you put $1,000 into Bitcoin at the beginning of 2017, you will have more than $10,000 in income by the end of the year. Investing in traditional stocks has never seen anything like this before. In 2017, the Dow Jones Index rose by approximately 23%.
I am very careful when looking at the data and graphs because I realize that you can make the numbers say what you want them to say. Just as cryptocurrencies achieved huge gains in 2017, similar rapid corrections also occurred in 2018. The point I want to make is that we need to be more objective.
Many newcomers in the cryptocurrency camp are shocked by the recent collapse. All they heard was how these early adopters got rich and bought Lambeth. For more experienced traders, this market adjustment is very obvious due to the surge in prices in the past few months. Several cryptocurrencies have recently made many people become millionaires overnight. Obviously, sooner or later they will want to make some profit from the table.
I think another factor that we really need to consider is the recent increase in Bitcoin futures trading. Personally, I think there are some major forces led by old guards who want to see encryption fail. I also believe that futures trading and the excitement surrounding crypto ETFs are positive steps towards making cryptocurrencies mainstream and considered "real" investments.
Having said so much, I started to think, "What if there is some kind of connection here?"
What if bad news on Wall Street affects cryptocurrency exchanges such as Coinbase and Binance? Will it cause them to drop on the same day? Or, what if the opposite is true, and because people are looking for another place to store funds, this will lead to an increase in cryptocurrency?
In the spirit of not trying to distort the numbers and being as objective as possible, I want to wait until we see a relatively neutral competitive environment. This week is as good as any time, because this is a period of adjustment between the two markets.
For those who are not familiar with cryptocurrency trading, unlike the stock market, the exchange will never be closed. I have been trading stocks for more than 20 years, and I know what it feels like to think lazily on a Sunday afternoon.
"I really hope I can trade one or two positions now, because I know that prices will change dramatically when the market opens."
The availability of Wal-Mart style can also lead to subconscious emotional responses, which can multiply in either direction. In the traditional stock market, people have the opportunity to press the pause button and make a decision overnight.
To get the equivalent of a week, I used encrypted transaction data from the past 7 days and DJIA from the past 5 days.
This is a side-by-side comparison with last week (3-3-18 to 3-10-18). The Dow Jones Index (because 20 of the 30 companies it contains) fell 1,330 points, or 5.21%.
For cryptocurrencies, the comparison between searching Apple and Apple is a bit different, because technically speaking, the Dow Jones index does not exist. Although many groups are creating their own versions, this situation is changing. The closest comparison is to use the top 30 cryptocurrencies by total market capitalization.
According to data from coinmarketcap, 20 of the top 30 tokens have fallen in the past 7 days. Looks familiar? If you look at the entire crypto market, the transaction volume has increased from $445 billion to $422 billion. Bitcoin, considered the gold standard, fell 6.7% during the same period. Usually like Bitcoin, like digital currency.
Coincidence or causality? How do we see roughly similar results? Are there similar reasons at work?
Although the price drop looks similar, I find it interesting that the reasons are quite different. I have told you before that these numbers can be deceptive, so we do need to check these levels.
The following are the most important news affecting the Dow Jones Index:
According to a report from USA Today, “strong employment data has raised concerns about upcoming wage inflation and has heightened concerns that the Fed may need to raise interest rates three times more than originally anticipated this year.”
Since encryption is decentralized, it cannot be manipulated through interest rates. This may mean that, in the long run, higher interest rates may cause investors to invest funds elsewhere in search of higher returns. This is where coding may come into play.
If it is not the interest rate, what caused the correction of the cryptocurrency?
This is mainly due to conflicting news about their positions in several countries