There is a lot of speculation about Bitcoin and other cryptocurrencies’ effects on various economic areas. Even though rigorous academic studies are in progress so far, there is no conclusive evidence that Bitcoin has caused any crash in stock prices or similar events. That said, it can be an interesting exercise to study whether there is any correlation between the fluctuations of these two markets.
As per many types of research, it has been found that when Bitcoin has a positive movement, so does the stock market, valid for most countries.
Stock prices are closely related to interest rates which means they move similarly as central banks change rates. This makes it very difficult to predict changes in stock prices based on Bitcoins price movements.
However, there are a few exceptions, especially in the Nordic countries where Bitcoins could potentially strongly influence stock prices. In those countries, Bitcoin has been given regulatory approval as an alternative currency and witnessed significant interest from the public.
In those countries, it is possible that Bitcoins can impact stock market prices, but I believe that this will be based on speculations rather than any intrinsic value Bitcoins have.
The only exception is the bitcoins that you buy for investment purposes. Then I believe that it can influence stock prices because Bitcoins are scarce and will be valued higher as the demand rises.
So if more people will start buying them, then more money will flow into Bitcoin, which means that investors will have more money to spend on stock investments. So there is a possible link between Bitcoins and stock prices, but the effect could be slight. You can use a third-party platform like the bitcoin trader software for buying and selling bitcoins.
Three ways Bitcoin has impacted stock market prices?
1. Impact on commodities, precious metals, and currencies
Bitcoin has influenced the movement of some commodities such as gold, silver, or oil. This is because it can potentially be used for trading purposes which means more money flows in and out of Bitcoins than what it does with paper currency. This makes Bitcoins price movements very influential in some markets, especially commodities.
2. Bitcoins influence countries where they have been legalized
In those countries where Bitcoin has been given regulatory approval, Bitcoins may slightly impact the stock market prices. In my research, I have found that people from those countries are more likely to invest in Bitcoins than, for example, an average American citizen—Likewise, in China, where Bitcoin has been given regulatory approval by the government. So when more people start investing in Bitcoins, they may have a slight impact on stock prices.
3. Bitcoins are scarce, which means their value might increase as demand rises
Bitcoins are limited to 21 million coins so far, and this means that their value will go up if more people start buying them. More people means more interest in Bitcoins which means more money flows into the currency, and this can potentially drive stock prices higher depending on how much impact it has.
The most significant factor affecting Bitcoin’s price movements is trading volume, but other factors like regulatory approval (or lack of it) can impact Bitcoins value. In the long term, if Bitcoins get more acceptance from the public, they can have a substantial effect on stock prices.
The most significant factor affecting stock price movements is interest rates, followed by economic growth and inflation. So any changes in the money supply will be reflected in some way in the stock market.
It is challenging to predict Bitcoin’s impact on stock prices, but in theory, it could have a slight effect, especially if more people start using them as an investment vehicle. However, if they are used mainly for trading purposes, their price movements could directly affect commodities rather than stock markets.
It is believed that it is tough to predict Bitcoin’s influence on stock markets, especially in countries where they have been legalized. It depends on the willingness of people to use them as an investment vehicle and if their price movements will be able to affect commodities such as precious metals, oil, or other resources.
However, if those factors come together, there is a possibility that Bitcoins can affect stock prices, but only in the long term and also not necessarily a strong one.
By Patrick Lee