Can Bitcoin’s Decline in Value Affect the Stock Market?

Bitcoin’s value reached $6,605.28 at the time of writing on June 16, 2018, according to data collated on CoinmarketCap. However, the value is less than a third of its record highs of $20,000 in December 2017.

Traditional Investors Ring Alarm Bells

CNBC reported on June 14 that investors should not be worried about the impact of bitcoin’s “bursting bubble” onto the equities market.

“There are things to be concerned about in terms of the stock market here with emerging markets and other issues, but I don’t think Bitcoin is going to be one of them,” said Matt Maley, an equity strategist at Miller Tabak who told CNBC’s Trading Nation.

Maley, however, acknowledged the growing concerns. For many investors, Bitcoin’s bubble is reminiscent of the dot-com crash in the 1990s. The equity strategist mentioned that the 90s approach to investing is relatively different from today.

Maley stated:

“Everybody was talking about both of those things when they were in their bubble, but only in the tech stocks did they own it all. Everybody seemed to own some tech stocks, whether it be the individual names or through their mutual funds. Today, while that bubble was forming in Bitcoin, not very many people bought it at all.”

However, the strategist observed a correlation between bitcoin and the stock market. When cryptocurrencies reached their all-time highs in December 2017, the S&P 500 also reached its peak. In February and March, as stocks began selling off, bitcoin did as well.

The managing director of FX strategy, Boris Schlossberg believes the divergence between the stock and cryptocurrency market will only grow larger.

“You’re going to see even a further divergence between the price of bitcoin and the price of stocks going forward,” said Schlossberg.

Schlossberg noted if bitcoin continues to plunge to extreme lows, the split in price and divergence between the cryptocurrency and stock market could be most extensive and quicker than expected.

Price Manipulation Concerns

While the declining value of Bitcoin may not have a direct impact on the stock market, there are concerns that the decline in Bitcoin’s value will continue.

“Things have changed for Bitcoin and the crypto space,” said Craig Erlam, senior market analyst at online trading firm Oanda Corporation, “There doesn’t seem to be as much hype or positive news. Every time we get a negative news story now – after a period of consolidation – we don’t see bullish sentiment come in to support it. It’s almost as if people are waiting to sell it.”