Governments and major financial institutions and authorities have always considered Bitcoin as a speculative investment, which means that it may or may not be a legitimate asset that people should be investing in. For the most part, this is because of Bitcoin being unregulated, decentralized, and still far from market maturity. These factors are the main causes of Bitcoin’s infamous volatility.
In a recent article from the Wall Street Journal written by Ben Eisen, Wall Street investors are now theorizing that the price actions in the stock market may have a correlation with the price action of Bitcoin. According to the article, “Investors are latching onto Bitcoin as a new indicator for determining whether the stock market is headed for another downturn.”
The investors’ theory implies that the volatility of Bitcoin seems to have a connection to what happens to the stock market.
In the graphs shown below, we can see that there appears to be some evidence to the theory during Bitcoin’s all-time high on December 2017, followed by the stock market high a month later. As the Bitcoin price corrected to its 3-month low, however, the Stock Market followed with its own crash a few days later.
This event is not a one-time thing. Evidence in the past can be seen during the July 2016 Bitcoin crash followed by the Stock Market crash a few days later.
With a reputable journal talking about the possibility of Bitcoin being an indicator of stock market price action, Bitcoin’s gradual ascent to legitimacy and mainstream activity has gained a gentle nudge upwards.
As a disclaimer, however, this theory from the Wall Street investors is merely at its speculative stage, which means that there is still insufficient evidence to back up the claim. The theory is inconclusive, but is undeniably worth looking into. If more evidences of correlation between Bitcoin and Stock Market price actions come up in the future, financial institutions and governments might want to rethink their views on the legitimacy and mainstream activity of Bitcoin.
