One of the news events that you may have missed during this week’s equities market correction is the substantive bitcoin recovery. While Wall Street failed to capitalize on prior momentum, and instead, tripped over itself, cryptocurrencies are now staging a seemingly believable rally.
Of course, nothing is ever for certain with the blockchain, and investors should be cautious about putting too much hope on any one trend. Nevertheless, it’s interesting to point out that while the mainstream media slammed cryptocurrencies as unstable and volatile assets, the unexpectedly powerful equities market correction contradicted their hubris.
Concurrently, the bitcoin recovery provided a sharp contrast. Cryptocurrencies regained their swagger early Monday, and up to the time of writing, are still running strongly. Is the fact that on March 19, bitcoin jumping into positive territory while an equities market correction occurred an indicator that cryptocurrencies will move further ahead?
It just might be, but not necessarily for the reasons you might think. While it seems rare that bitcoin prices move higher during times when the stock market drops lower, this exact situation has only occurred 11 times this year up to the March 19th session. Conversely, the stock market moved higher while bitcoin slid 13 times.
Not exactly what you would call significant differences, especially when there were 52 trading sessions (Wall Street schedule) this year up to March 19th.
But what is significant is the sentiment magnitude towards the bitcoin recovery as opposed to an equities market rally. On days when bitcoin moved higher while the broader markets corrected, the average day-over-day gain is 3.8%. Conversely, when equities moved higher while bitcoin corrected, the average daily performance is only 0.55%.
The magnitude difference here is absolutely stunning – 590%!
While it’s absolutely fair game for the mainstream media to report bitcoin volatility and downside events in cryptocurrencies, where they go wrong is failing to disclose the context. Surely, bitcoin does see tremendous drops, but the ensuing bitcoin recovery is typically quick and fiercely strong. As an example, bitcoin just breached the $9,000 level, a nearly 5% rally from 24-hours ago.
On the other hand, an equities market correction doesn’t occur that frequently. However, when it does, a responding rally is often slow and weak. That could be a deal-breaker for an investor looking to make profits within a reasonable timeframe.
So yes, cryptocurrencies are definitely volatile, but in the bigger picture, their performance magnitude is often high enough to overcome unideal entry points.