How a Stock Market Crash Would Affect Crypto Currency | Shifu Digital

In this video, we are going to talk about How a Stock Market Crash Would Affect CryptoCurrency.
As of April 2021, Tether (USDT) is the leading cryptocurrency based on volume in the world, followed by bitcoin. The size of the blockchain technology market is 1.2 Billion US Dollars. Cryptocurrencies aren't directly related to the traditional stock markets. However, that doesn't save them from not being affected by a crash in the stock market. If several countries at once have a stock market crash, then the cryptocurrency is likely to be impacted as well.

Impact of a stock market crash:
Whenever a stock market crashes, several reasons play a huge role in that crash. These reasons could vary from recession to economic policies, a pandemic (as seen with Covid-19), government policies, and many more. However, a stock market crash sends one main element in scarcity, i.e., liquidity. Liquidity vanished like thin air, and it is bound to have an impact on cryptocurrencies as well.

In 2020, the start and onslaught of the pandemic proved this theory as well. Bitcoin prices fell more than 50% within a 24 hour period. As per Statista, the Dow Jones Industrial Index dropped around 8000 points from February 12 to March 11, 2020, and it impacted the king of all cryptocurrencies – Bitcoin. Before the pandemic, the DJIA index stood at 29,000 points - so safe to assume that the stock market crash was massive.

Cryptocurrencies and relationship with the stock market:
Cryptocurrencies are like the new kid on the block as they are relatively young. Bitcoin was launched in 2008 as an alternative form of payment. Today, it is mostly used as a safe asset, and even huge companies like Tesla are investing in it. Before 2020, we were yet to see the impact on the crypto market by a stock market crash or an economic recession. A stock market crash impacts all the assets, but the impact can be estimated for most assets, like gold. But with the 2020 stock market crash, it was easy to see cryptocurrency as a volatile asset.

Cryptocurrencies and their international value:
Until and unless there is a worldwide depression, it is very unlikely that all or almost all of the stock markets in the world would come crashing. It gives cryptocurrencies an edge as well. Cryptocurrencies aren't directly dependent on a singular stock market in the world. Major stock markets like that of the US and other countries could impact, but the same can't be claimed for other stock markets – the bigger the country, the bigger the impact on cryptocurrencies.

One example can be Zimbabwe and Venezuela- both with destroyed economies and active use of bitcoin. The safety and independence of cryptocurrencies from their local economic condition make crypto a better and safer alternative for them.

Cryptocurrencies are still in the evolving phase. Many people don't understand the science behind them and are coming to terms with how crypto functions. Nonetheless, cryptocurrencies aren't entirely independent, and a stock market crash, specifically in a country with a large base of crypto investors, would send crypto in a downward spiral as well.

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