Federal Reserve’s rate hike has created fear in the US that there might be another government shutdown. And because of this, the financial market suffered from losses. The Dow, the S&P 500 fell by 2.1 percent while the Nasdaq Composite lost 2.99 percent. You also have tech stocks such as Amazon, Facebook, and Apple that all suffered losses from this news.
Komal Sri-Kumar who is the president at Sri-Kumar Global Strategies mentioned that “There are lots of signs now suggesting that we may be looking at a recession. I would say that the risk here is that a whole lot of confluence is taking place: The trade is not going to end soon, and the Fed totally misjudged the market in suggesting two more rate hikes next year”.
Contrast from Q3
In comparison to the crypto market, up until Q3, the stock market was performing well while the crypto market was bearish right from the very beginning of the year. The crypto market suffered losses mainly because of the regulatory changes applied to the industry.
By the time early October entered, S&P 500, Dow Jones Industrial Average, and the Nasdaq Composite Index all wiped out most of its gains from the current year. If you will look at the number, Dow Jones Industrial Average lost 16.3% since October which was the largest loss since 1931 which was the Great Depression.
Bitcoin jumped from $3,270 to $4,000. That’s a 22.6% jump. For the first time this year, the overall crypto niche was able to outperform Bitcoin as the entire crypto market gained by some 28.7%. That’s an additional $30 billion in market capitalization.
What is the Long-Term Implication?
There could be a long-term implication for this particular scenario. This could mean that many are looking at cryptocurrencies, Bitcoin in particular as a safe haven when the stock market falls down. Keep in mind that Bitcoin was a product of the 2008 recession. It was designed to have a currency that is not tied to any economy.
However, if you are going to ask Ryan Rabaglia who is the head of trading of OSL in Hong Kong which is a cryptocurrency dealing company, he said that “The days of crypto being the safe-haven play and having a high degree of detachment from the rest of the world are seemingly diminishing”. But his statement could easily be refuted by the current market movement.
Though Bitcoin has been battered by losses and is far from the near $20K peak from last year, this movement could mean a lot. Bitcoin may not be a conventional safe haven asset, but the fact that it moves independently from the US stock market could easily make it useful for other trading strategies. For instance, fund managers could easily go include Bitcoin in their portfolio. It can even be included in retirees 401K.
Will there be regulatory clarity in the coming year? The SEC has been doing its best this year to bring regulatory clarity for the industry. There were even some lawmakers who were proposing a change in the current definition of securities.