Cryptocurrencies were created as a response and future preventative against the Global Financial Crisis that plagued many economies during the 2007 – 2009 period. While cryptocurrencies are entirely separate from the stock markets, governments and financial institutions, many people have been left wondering, do stock market prices affect crypto prices? Join us as we uncover the truth behind the correlation, if any. 

What Influences Stock Market Prices?

Stock market prices are influenced by market forces, most notably supply and demand. The more people that buy a stock (demand) then sell the stock (supply), the higher the price will increase. While if more people are selling the stock than buying, the price will decrease. Additionally to this, there are several other factors that will influence the stock price, such as: 

  • Environmental factors
  • Technical factors 
  • Investor sentiment
  • News

Aside from the other factors, news plays a big role in stock market volatility. Positive news is likely to see a price hike, while negative news might see a sharp decline as investors rush to sell their stock to avoid any impending losses.

What Influences Crypto Prices?

While just over only a decade old, the cryptocurrency industry is now worth over $370 billion. Aside from supply and demand also being the main contributing factor to crypto prices, complicated mathematical constructions and limited supply also play a part. The last two factors largely pertain to Bitcoin, however are significant to most other cryptocurrencies (in terms of limited supply). It’s also worth noting that Bitcoin, the first and largest crypto market, currently makes up 60% of the entire crypto market. So, when Bitcoin increases in value, many other cryptocurrencies do so too.

As with any new industry, volatility is expected. While Bitcoin, and cryptocurrencies in general, are equally renowned and feared for their volatility, many traders make a living from these swinging markets. Bitcoin’s limited supply also plays a part in its value. While fiat currencies suffer from inflation, the cryptocurrency, and most others, are deflationary, meaning that the value will inevitably increase over time due to its limited supply. 

Market sentiment and news factors, particularly surrounding regulation, also play a large role in the crypto market’s price, with positive sentiment increasing the price and negative sentiment and coverage decreasing the price. 

Do Stock Market Prices Affect Crypto Prices?

The long and short of it is no, stock markets prices do not affect crypto prices. As stock markets are fiat based and therefore under the control of government and financial institutions, they have little to no influence on the crypto prices. 

However, this year as we navigated through some unprecedented times, we witnessed the crypto markets experiencing a surge in market value as we saw the stock markets plummet. As the US Federal Reserve pumped trillions of dollars into the economy, weakening the dollar and casting large shadows over the stock markets, many investors took their money out and invested it in less likely markets. 

In a strange twist of events, Bitcoin and gold became “safe haven” investments. These markets saw a significant increase in value as investors rushed to put their money in more “reliable” markets. 

It may happen that the stock markets and crypto markets move in a similar directions, however this is more due to chance than it is down to one specific factor. 

Having A Healthy Investment Portfolio

Whether you’re interested in stocks or crypto, having a healthy investment portfolio is the wisest thing to do. A diversified portfolio is a strong risk management technique and ensures that if any losses are incurred that the risk of such is minimized. If you’re looking to incorporate crypto into your investment portfolio, Oobit offers a simple and instant means to do so, allowing users to buy several cryptocurrencies with credit or debit card.