What Moves The Cryptocurrency Market?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

For those unfamiliar with the cryptocurrency market, the daily ebb and flow of coin prices by anywhere from 5% to 10% in a matter of hours can seem as capricious as the roll of the dice or the random turn of a roulette wheel.

However, investors are increasingly confronted with the potential appeal of cryptocurrencies as an alternative investment, even a potential safety asset, in the face of rising volatility and uncertainty. And as a pure hedge, bitcoin, ethereum and the like do have the benefit of being completely uncorrelated with any other segment of the market. While gold and treasury notes may rise in value as stocks flounder, the price of bitcoin could potentially move in any direction for no other reason than more people felt like buying or selling the coin in a single day.

Sympathy For 2020

Take the recent stock market volatility as an example. As the market has bounded between euphoria and panic, tacking on and talking off a full percentage point in a single day, the price of gold has steadily inched higher to by roughly 10% in 2020 to reach a new 7-year high.

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Bitcoin, on the other hand, has been far less measured in its year-to-date performance, although also more predictable. The coin surged 30% in the first weeks of January right alongside the broad market before contracting about 6% as February approached, again in sympathy with the stock market. Now, as equities sell-off, cryptocurrency traders have been eager to see how the digital coins respond. While most coins are retaining value compared to the broad market, bitcoin has shaved off about 10% of its 2020 gains.

Correlation Station

Of course, to say cryptocurrency is fundamentally correlated with the stock market would be to take it too far. Bitcoin has sustained some of its biggest recent losses during huge market rallies. To say that cryptocurrencies are fundamentally correlated to anything would take more evidence and data points that likely exist in the asset’s relatively short life.

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However, it is clear that there is some interplay between other asset markets and the crypto space, and like many correlated assets, those relationships can change with time. Cryptocurrency traders shouldn’t take these ephemeral relationships for granted. Because although the patterns and catalysts moving the crypto market are often obscure or esoteric, they are rarely uncorrelated.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.