What is the Impact of Cryptocurrency on the Stock Market?
Cryptocurrencies,
especially Bitcoin, have shown their value in recent years, with 14 million
Bitcoins currently in circulation. Most of the current stock market funds are
investors who are betting on the potential of this new technology. This should
continue until a certain level of price stability and market acceptance is
achieved.
Bitcoin investors
seem to be betting on the "intrinsic value" of the cryptocurrency in
addition to its stated value. Undistributed network, code integrity, technology
and infrastructure are all included.
The fact that
cryptocurrency is not subject to any regulatory body such as the Central Bank
(or other banks) before the transaction is valid is one of the main reasons why
it started organically. These virtual currencies are a good alternative to the
financial system (fiat currency) due to their widespread network system, which
uses a peer-to-peer payment network based on blockchain technology.
Supply and demand
It is well known that consumers and producers have a great influence on the
prices of goods and services. These factors affect the price of stocks, and it
seems that Bitcoin is often affected. There may be 21 million Bitcoins created,
and the price is determined by the fact that it increases when the supply
decreases. As investors explore these cryptocurrencies for investment
opportunities, other cryptocurrencies will follow. Let's take a look at the
impact of cryptocurrency on stocks. There is no consumer protection in the
current system, which provides an important method of consumer protection. Many
crypto-crypto and crypto-crypto-fiat exchanges with significant regulatory gaps
have emerged due to the increase in currency. The status of one account and
price stability or benchmarking by crypto currency has not yet been achieved.
The effect on the central bank position will be only partial until this is
done. Stablecoins will be made possible through ongoing research into the use
of bitcoin and the blockchain to establish price stability.
A stablecoin will
immediately challenge the current legal tender and serve as a complete
substitute when broadcasting monetary policy on the blockchain. The Emergence
of Asset Classes A number of global macroeconomic factors have fueled recent
interest in cryptocurrencies, including expected negative returns in long-term
mature economies, all-time highs in stock markets, and the level of liquidation
recorded by the central bank. A new generation of crypto-asset investors and
buyers is emerging due to social factors such as genuine curiosity, FOMO (fear
of missing out), and speculation. . In April 2021, the price of one Bitcoin
unit will reach $60,000. Its value will be reduced in June 2021. Bitcoin's
source code indicates that only 21 million bitcoins will be produced;
Therefore, people believe in the value of the treasure because of its scarcity.
The typical investor, on the other hand, finds this kind of volatility
difficult to deal with. The stability that sophisticated investors need is
demonstrated by the rapid return and strong power of cryptocurrencies in 2020.
Investors who are waiting to invest, on the other hand, will look at where
cryptocurrencies are going and the changes that come with it.
Conditions The
condition of the economy has a great influence on the price of the investment.
Gross Domestic Product (GDP) is a measure of the growth and decline of an
economy over time. It follows a natural cycle, although large events can push
it into certain areas. For example, the epidemic of Covivirus-19 in 2020 led to
an economic collapse, a mini-recession and a decrease in stock market values.
Geopolitical issues
The stock market and the value of cryptocurrencies are affected by political
decisions between countries such as import tariffs or other political actions
that can affect the delivery of goods, services, transportation and more.
Therefore, those who invest in assets that influence politics are concerned
about price changes and buy or sell based on their opinion.
Market Performance: There is a positive correlation between cryptocurrency and stock market. Therefore, market performance will be affected by changes in the crypto market. The stock market fell following heavy selling by cryptocurrency investors when the price of the main crypto tokens fell 40% to 50% in May after hitting new highs for most of 2021. It's hard to say how much the bitcoin crash has affected stock prices. On the other hand, the sudden fall in the value of cryptocurrencies is a sign of a serious problem that can harm stocks without any reason.
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