In recent weeks, the cryptocurrency market and stock market indices have both experienced a significant decline of their prices. Many analysts seemed to see a correlation between bitcoin and financial indices. However, the recent news of the Bitcoin has shown us that no relevant link has been established. The Bitcoin indeed regains colors while the majority of the indices are in the red.
According to some analysts, individual and professional investors, seeing their investments decline in traditional markets, would at the same time sell their cryptocurrency portfolios to cover themselves and recover part of their gains. But this argument no longer seems to be valid:
Indeed, as a reminder, the bitcoin began to plunge in mid-December 17 following rumors of a ban on its use in China and also Facebook's ban on advertising on cryptomoney.
At that time, the DowJones and the Nasdaq (the two U. S. benchmark indices) were still rising. The 10% drop in the indices will only occur from 26 January and will end with a low point on 8 February.
The fall of the bitcoin, leading to most other cryptocurrencies, ended two days before: February 6, and then went up again.
For a few days, the decline of indices and cryptocurrencies was therefore common and many professional investors and the media thought it was a link. Nevertheless, the causes of these two declines do not actually have a rational link between them: the decline in bitcoin precedes the decline in indices and not the opposite.
Similarly, the U. S. markets declined due to uncertainties related to US bond yields, driving Europe in its wake. Since February 6, the bitcoin continues its rebound and recorded a rise of 6% yesterday (Thursday 01 March) while the majority of the major stock market indices finished in the red with sharp declines (Nasdaq: - 1.27% DowJones: -1.68% Cac40: -1.64%)
Many banks (including JP Morgan) have also recommended that their private clients diversify their investments by investing part of their assets in bitcoin, which is the leading and most liquid currency due to its high capitalisation.
It can therefore be assumed that during these periods of uncertainty and overvaluation in the traditional financial markets, professional investors transfer part of their capital to cryptocurrencies with positive trends.