As the U.S. stock market peaks, the market begins to focus on the impact of U.S. stock fluctuations on cryptocurrencies:
Research indicates that if the U.S. stock market crashes, cryptocurrencies are likely to decline as well, as both are viewed as high-risk assets during periods of economic uncertainty.
Evidence tends to show that cryptocurrencies have exhibited positive correlation with the U.S. stock market during recent market crises, such as the pandemic in 2020 and the economic downturn in 2022, where both experienced significant declines.
Although some believe that cryptocurrencies may perform better during crises in the traditional financial system, historical data does not support this view.
Overview
If the U.S. stock market crashes, cryptocurrencies are likely to perform poorly and may also crash. This is because both are viewed as high-risk assets, and during periods of economic uncertainty, investors tend to sell these assets to protect their capital. Below is a detailed analysis:
Background and Relevance
A crash in the U.S. stock market typically refers to a sharp decline in stock prices, which can lead to decreased investor confidence and broader economic impacts. Cryptocurrencies, such as Bitcoin, have shown increased correlation with the U.S. stock market in recent years, particularly during periods of market stress. Research indicates that during the market crash triggered by the pandemic in 2020, the S&P 500 index fell from about 3,200 points in January to 2,429.70 points on March 23, a decline of about 24%; during the same period, Bitcoin dropped from about $8,500 to $6,400, a decline of about 25%. Similarly, in 2022, the S&P 500 fell from 4,800 points in January to 3,500 points in October, a decline of about 27%, while Bitcoin dropped from $40,000 to $17,000, a decline of about 57%. These data suggest that both tend to decline simultaneously during significant market events.
Cause Analysis
Cryptocurrencies are considered high-risk assets, similar to stocks. As economic uncertainty increases, investors tend to sell these assets in favor of safer investments like bonds or cash. Additionally, many cryptocurrency investors also engage in stock trading and may sell both during market panic. Economic factors that lead to stock market crashes, such as recessions or financial crises, can also have negative effects on cryptocurrencies.
Potential Exceptions and Controversies
Although some believe that during crises in the traditional financial system, investors may turn to decentralized cryptocurrencies as an alternative, historical data (such as market performance in 2020 and 2022) does not support this view. Some experts argue that cryptocurrencies may perform better as a hedging tool in hyperinflation scenarios, but this remains speculative and lacks sufficient historical data to support it.
