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Cryptocurrency
by Natalia Revishvili on January 11, 2019

Will Bitcoin sink because of the expected financial crisis?

The financial analytics have been overwhelmed and quite worried about the next financial crisis to come in 2020. The cryptocurrency market has been unstable recently as never before. The market cap, or the market capitalization, was estimated to range from $500 billion, $300 billion to $728 billion in December 2017. The clear upward growth was observed throughout the whole period of 2017. However, at the beginning of 2019, the market cap of the cryptocurrency has now fallen down to approximately $122 billion. That solely can prove that the crisis of the cryptocurrency has already happened.

Correlation with Bitcoin

cryptocurrency valueAs a huge downfall in the market capitalization rate has appeared recently on the cryptocurrency market, it shall possibly lead to the depreciation of the Bitcoin cryptocurrency value as well. However, that is not what is happening in reality.

Fortunately, the digital coin market is not directly related to the overall financial market conditions. Simply saying, the price of Bitcoin does not change with the fluctuations of the financial market.  Thus, the lack of the interrelation between the cryptocurrency ‘assets’ and the changes in financial conditions may save Bitcoin from falling into the dead-end.

Is there any correlation at all?

Generally speaking, the cryptocurrency is not usually connected to any of the economic factors affecting the market. However, there are still some exemptions.  Thus, the so-called ‘stablecoins‘, the ones like Tether, are pegged to the currency of the country, or other traded commodities, like, for instance, gold. That is why they are sometimes also called centralized. Meanwhile, the whole concept of the cryptocurrency is based on the decentralization.

According to various cryptocurrency brokers and analysts, there is actually a negative correlation between cryptocurrency and the financial market. That means, that even if the crisis appears, it would not only not harm Bitcoin, but rather benefit it in a way.

The bottom line is that there is no direct correlation between the value of cryptocurrencies and the price changes in the financial market. Neither does the possibility of the economic crisis occurrence might affect Bitcoin or any other cryptocurrency.

Need more proof?

Of course, people now are overwhelmed by the decrease in cryptocurrency prices. Some of them are even expecting the cryptocurrency industry to fall down.

However, that is unlikely to happen in the nearest future. To adduce facts in support of the statement, the example of a market cap giant as Amazon might be mentioned. Amazon experienced the loss of billions of dollars in its market capitalization over the years. But the stocks of the company are still stable and there is even more expected to come.

By Natalia Revishvili

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