Some government bonds gained in price on Wednesday, while futures on the US S&P 500 stock index fell and oil also fell after the price of bitcoin fell 30% on signs that the China was preparing a crackdown on digital tokens. The Japanese yen – a currency often in demand during times of stress – also rose.
A few hours later, bitcoin rebounded strongly. But it was unusual for ructions to catch the attention of major market players.
“The catalyst for these moves appears to have been a sudden bitcoin rout,” Rabobank rate analysts Richard McGuire and Lyn Graham-Taylor wrote in their regular note the following day. “So here we are. Even in August, a body like the Rabo Rates Daily was finally forced to bring cryptocurrency to the forefront.
The pair wrote that it “seems difficult to conceive how there can be a direct link between Bitcoin’s gyrations and movements in the share of the global financial market.”
Typically, crypto prices are determined by obscure factors such as tweets from bitcoin enthusiast Elon Musk, whose tokens electric vehicle company Tesla had purchased in large amounts. The price movements of highly speculative cryptocurrencies rarely, if ever, prevent regulated and established markets.
But that may be starting to change.
On Friday afternoon, cryptocurrencies fell sharply again after Chinese Vice Premier Liu He reaffirmed Beijing’s determination to curb cryptocurrency mining and trading.
The news reduced the value of bitcoin by 12%, ethereum 20% and dogecoin 18%. The liquidation appears to have entered the US stock market, where the highly technological Nasdaq plunged in the last hour of trading.
At Barclays, credit analyst Soren Willemann also noted that the bitcoin turmoil had boomed European corporate bonds. “The direct implications are hard to imagine, but as the crypto correction correlates with the weakness in stocks of modern tech companies (especially Tesla’s bitcoin holdings), this is important for European credit because it is difficult for our markets to ignore it. [S&P 500] weakness, ”he said. “That said, we would be buyers on any crypto-induced drop. “
As regulators around the world increasingly revolve around the cryptocurrency market, primarily in an effort to strengthen consumer protection, the question of bitcoin’s suitability for broader markets has become more pressing among investors. .
One theory is that if bitcoin prices were to take a nosedive, it could be a blow to household finances for retail investors, starting the narrative that the dynamic consumer can continue to support stock markets.
Additionally, some funds and family offices have invested money in cryptocurrencies, which has sparked renewed interest among investment banks looking to facilitate demand. On the margins, a sharp drop in crypto could also hurt the market’s appetite for risky bets.
The counterpoint is that a crypto trading boom has coincided with declining volumes on stock trading platforms favored by avid day traders. Any large and lasting fall in crypto could therefore prove to be a trigger for a recovery in the riskier parts of the stock market if these retail investors were to switch back to equities.