Cryptomarkets vs Traditional Markets – An Alternative Flight to Safety?

So far this year we have seen some incredible market volatility in both sides of the investment world with the global cryptocurrency market cap dropping by roughly 50% whilst the Dow Jones officially entered a “market correction” falling more than 10% from its record high at the end of January.

Significant sell-offs in the crypto world were seen – whilst it’s difficult to suggest any single cause for it, it has been noted by many that the crypto markets tend to dip substantially every January. Although for most new crypto investors such a large drop does undoubtedly raise alarm, it pays to remember that this level of volatility is to be expected in such a (relatively) young market place.

Whilst the Dow dropping 10% might feel minor by comparison – when you take into account the Dow is compiled of major blue chips and household names – that 10% drop is just as concerning for those involved – be that investors or the companies listed.

The cryptomarkets and the token economy in general still has to find its feet as it were – the lack of general regulation is still a concern for many traditional investors and the “old-money” institutions are very slow in even wanting to understand the market. The likes of Warren Buffet claiming it will all end badly (whilst also stating he didn’t understand cryptocurrencies at all) and JP Morgans Jamie Dimon famously backed down after calling Bitcoin a fraud late last year and pretty much dismisses the subject when questioned.

The fact the press in general continues to pick out only comments that sell papers or attract website visitors as opposed to covering the markets from an objective point of view in the same fashion with which the traditional markets are covered is laughable – Buffet touting doom and gloom whilst in the same breath acknowledging he has no idea about the subject is not news. Dimon claiming Bitcoin a fraud simply shows lack of knowledge and over-inflated opinion. Yet both individuals and the industries they represent are held in high regard within the traditional financial world.

Conversely, the Winklevoss twins of Facebook fame a few years back and cofounders of the Gemini exchange have hit back with some scathing comments in an interview with CNBC on the opinions from the old-money financiers (basically saying they are too old to understand) as well as pointing out significant and fundamental flaws in the traditional financial systems. Granted the brothers have a vested interest in the cryptomarkets of course, but then being credited as the first Bitcoin billionaires who can blame them after sinking so much into the sector.

Do dips like these show signs of correlation?

In short – not yet. The cryptomarkets are still small and are yet to settle to a point where true asset value can be demonstrated. Whilst there will be those that will use that statement as another weapon to downplay the sectors value – the reality is that change is on the way, and fast. Although it’s been suggested by many that “Bitcoin is the new gold” it’s far too early to make such a call just yet – and to be honest there will be far more fitting cryptocurrencies that will likely take that title in the years to come.

Given time there is no doubt correlation will start to occur eventually in the same way that Gold is seen as a hedge in a volatile traditional market. However, for that to happen there is only one metric that needs to pass, and it’s the same as it was for the dot com boom and bust – time itself. Corrections (and very large ones at that) will continue to occur for at least the next 12 months as the cryptomarkets stabilise and  regulation is rolled out – for those invested early on there are significant gains to be made both short and long term. There will be crashes, corrections and slumps in BOTH markets at different times and for very different reasons which of course time will tell, but right now, we are a long way from seeing the cryptomarkets influencing stock markets or vice versa anytime soon.

Created: Monday, February 12, 2018

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