Will Bitcoin be dethroned from the stock market in 2022?
Cryptocurrencies are unpredictable by their very nature. So, when the question arises whether bitcoin will delist the stock markets in 2022, the answer is certainly not so straightforward.
A month ago, one of the most interesting articles ever written about this topic told us how history has shown that now $103 trillion worth of cryptocurrency (Bitcoin) closely follows traditional stock exchanges.
Will this trend continue? Or will bitcoin finally break free and establish its own market in 2022? Let's explore this question.
Understanding bitcoin decoupling
Before we move on, it is important that we first understand the meaning of decoupling.
Decoupling is a phenomenon when the return of one asset differs from the expected pattern of correlation with others.
In the context of bitcoin, this means that bitcoin's price action is breaking away from the traditional market patterns it closely follows.
Currently, bitcoin follows the path of the three major US indexes, the S&P 500, Nasdaq and Dow Jones. Market watchers first noticed this correlation in late 2021, when both assets, the S&P 500 and bitcoin, rallied strongly after overbought.
Both saw a bearish correction as we moved towards 2022.
hedge against inflation
One of the major USPs of bitcoin is its ability to hedge against inflation. People are attracted to it because of the assumption that they will be unaffected by rapid changes in the fiat trading market.
This was the entire premise behind limiting the supply of bitcoins to 21 million. This will ensure that the supply is low, the scarcity is enforced and the value of the token is high.
This all changed during the crypto boom of 2020 and 2021. Bank of America says bitcoin has not acted as an inflation hedge for long. Since July 2021, it has been used as a risk asset.
The main reason for this is BTC's close relationship with the NASDAQ 100. It was close to last year's high.
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The reason behind the correlation between the stocks
What is the main reason behind the close correlation between bitcoin, an unpredictable market, and traditional market trends?
“Global tensions have escalated,” says Aaron Samsonoff, Canada's chief strategy officer and co-founder of crypto investment company Invest DeFi.
He has observed that the value of bitcoin is very closely tied to that of traditional markets during times of market uncertainty.
The second reason is the interest of financial institutions. Unlike the general crypto crowd, whose bullishness about cryptocurrencies is based on sentiment, and financial institutions have a more rational approach.
Large financial institutions buy cryptocurrencies and treat them as traditional assets. It follows the traditional lines of the crypto price graph.
Will Bitcoin be dethroned from the stock market in 2022?
During periods of calm or bullishness, bitcoin breaks away from traditional market trends and does its job.
“This is because bitcoin is treated as an asset at risk with elements of a safe haven.” Samsonoff continued.
Bitcoin is still a budding baby when it comes to trading markets. As it matures, the volatility associated with it is expected to be lost. This relative calmness will separate bitcoin from the traditional stock markets.
However, that peace is not going to come anytime soon.
The traditional and cryptocurrency markets are on edge in the current Russia-Ukraine situation.
However, it has had a positive effect on bitcoin. Countries like El Salvador and Malaysia are on the verge of accepting bitcoin as legal tender. The case for decoupling bitcoin could strengthen as countries move away from hard assets.
Gate.io's Chief Marketing Officer Marie Taibouett has said another thing in this matter.
“The Ukraine-Russia war and the Federal Reserve rate hike should have had a positive effect on the price of BTC, especially given how BTC has proven itself to be a solid hedge against inflation. However, nothing of the sort has happened. "
Even though the market is currently acting differently, experts say that bitcoin is rapidly moving towards a more stable base.
Now, the question is not whether bitcoin will detract from traditional stocks; It is a question of "when".
The downside of decoupling
Mary added that if bitcoin breaks apart and retains a sense of stability, it will lose its “fun” aspect.
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