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This week there was a huge drop and fall in cryptocurrency prices in traditional asset classes, which could offer an idea of what could happen in the event of a more severe shake-up.
Some government bonds gained price on Wednesday, while the futures of the US S&P 500 equities fell and oil also retreated after the price of bitcoin fell 30% in signals that the China was preparing a crackdown on digital tokens. The Japanese yen, a currency often requested in times of stress, also rose.
Hours later, bitcoin bounced sharply. But it was unusual for the cuts to catch the attention of major market participants.
“The catalyst for these moves appears to have been a sudden defeat of bitcoin,” Rabobank rate analysts Richard McGuire and Lyn Graham-Taylor wrote in their usual note the next day. “It simply came to our notice then. Even as a body as august as the Rabo Rates Daily, it has finally been forced to put cryptocurrencies at the forefront.
The couple wrote that “it seems difficult to conceive of how there can be a direct link between the turns and movements of Bitcoin by the global financial market.”
Cryptography prices are usually driven by obscure factors, such as tweets from bitcoin enthusiast Elon Musk, the electric vehicle company from which Tesla had purchased large amounts of chips. Price changes in highly speculative cryptocurrencies rarely or never affect regulated and established markets.
But that may be starting to change.
On Friday afternoon, cryptocurrencies fell sharply again after Chinese Vice Premier Liu He reaffirmed Beijing’s determination to curb mining and cryptocurrency trading.
The news meant a 12% discount on the value of bitcoin, 20% on ethereum and 18% on dogecoin. The sale appeared to be bleeding in the US stock market, where the Nasdaq, which had a lot of technology, fell in the last hour of trading.
At Barclays, credit analyst Soren Willemann also noted that the bitcoin turmoil had wiped out European corporate bonds. It is difficult to dream of direct implications, but to the extent that cryptographic correction correlates with the weakness of the actions of modern technology companies (not just Tesla’s bitcoin holdings), it is important for European credit, as it is difficult. ignore our markets [S&P 500] weakness, “he said.” That said, we would be buyers of any cryptocurrency-induced deposit. “
With regulators around the world flipping the cryptocurrency market, especially in an effort to strengthen consumer protection, the question of the relevance of Bitcoin to wider markets has become more urgent among investors.
One theory is that if bitcoin prices were disconcerting, this could be a significant blow to household finances for retail investors, eliminating the narrative that the potential consumer can continue to drive stock markets.
In addition, some funds and family offices have put money in cryptocurrencies, causing an increase in interest among investment banks that want to facilitate demand. On the margins, a major cryptocurrency crash could also dampen the market’s appetite for risky bets.
The counterpoint is that a boom in cryptocurrency trading has coincided with a drop in the volumes of stock trading platforms, favored by traders who need one day. Therefore, any significant and sustained fall in cryptocurrencies could be a trigger for a recovery in riskier parts of the stock market if those retail investors returned to stocks.
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