Despite COVID-19, the stock markets have kept pushing higher, backed by the exceptional support of the government. But in recent times, murmurings of a crash have been getting louder. In addition, non-implementation of easing policies has only served to justify talks of a possible stock market crash. Bitcoin (BTC) and stocks are traditionally correlated. One wonders what might happen to bitcoin prices if the stock market happens to crash.
Continued relief efforts of the pandemic justify the currently high inflation rates. On the government front, it does pump money into the economy whenever relief is not needed. Surging real estate markets and reckless buying by investors, especially cryptocurrencies, are other money-pumping tools like brexit millionaire app into the economy. All this overheats the market heavily, leading it into a bubble phase. Then, as soon as the money pumping dries up, the inevitable crash happens.
While most traders and analysts believe that ‘the expectations of a heavy crash are justified’, the timing is highly debated. Growing dissatisfaction with the current financial system gives an automatic growth to crypto markets. As a result, crypto markets are expected to enjoy the early development phase and grow immensely.
Crypto and stock markets had an unprecedented recovery in March of last year, leaving stock market analysts surprised. History suggests that crypto markets would follow stock markets if a crash were to happen in 2021. Investors moving their funds to crypto is unlikely, seeing as it remains a notoriously volatile asset. However, a prolonged flat period in U.S. stocks is not expected to have any bearings on the prices of bitcoins.
Bitcoin has its own market cycles and dictates its own price movements, therefore remaining undisturbed by trends in the stock market. Regardless of the recovery of stock markets in March last year, one can safely speculate that bitcoin would anyway have achieved the highs it has. While it is true that bitcoin prices of late have been struggling to stay within limits, data predicts that the bitcoin market cycles could resume their control of prices irrespective of the disorder in stock markets.
In the event of a market crash in 2021, evidence suggests a struggle between the effects of the prolonged downturn and bitcoin’s market cycles. The assumption of the latter outweighing the former even by the smallest margin would make bitcoin an attractive investment option and a safe haven asset. Assuming the effect of a prolonged market downturn is negated by bitcoin’s halving cycle, it actually stands a great chance of becoming the preferred asset of giving significant returns in such times.