In the latest cryptocurrency news, we are seeing big drops both in the price of Bitcoin and other tokens – as well as the prices of the global stock markets which crashed. The US, South Korea and China are among the countries which see red in their stock markets.
Since cryptocurrencies are considered as viable long-term investments (especially by millennials) they are still vulnerable to the weakening global economy and the asset class isn’t able to perform as a solid hedge against uncertainties in the market.
Historically, there hasn’t been big correlation between the crypto market and the global stock market and the traditional markets such as equities. The price movements were always independent, regardless of how the financial market performed.
Currently, the US stock market is seeing one of the worst sell-offs in history and the trade war between US and China led to a new decline in the valuation of the Chinese stock market. These weakening markets directly affected the economy of South Korea which was already in decline due to the low growth rate within the country.
As Alvin Cheung who is an associate director for Prudential Brokerage said, speaking with SCMP:
“There is a lot of negative news about the US criticising China before Trump and Xi meet next week, and that has dented sentiment. The mixed messages could be the US trying to win some bargaining chips for the upcoming meeting. Investors are on the sidelines, closely watching to see if the meeting will yield any concrete results.”
Crypto could easily become a store of value just like gold – used by investors to hedge against the global economy. The lack of liquidity and a solid infrastructure for retail traders, however, makes cryptocurrencies unable to operate as a hedging tool for large-scale investors. Hopefully this will change in the future and crypto could potentially work as an asset that has huge correlation with the global financial market
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