Is the Bitcoin price really independent of the stock market?

Over time, however, a correlation began to emerge between Bitcoin prices and stock markets. It can therefore be observed that the Bitcoin price fluctuates when large individual stocks, such as the UBS share or the Novartis share, demonstrate this. Let's take a look at why this is the case. Let's take a brief look at the main differences between the stock market and Bitcoin:

● Shares are ownership interests in a company. When you buy shares, you become a partner in the company and benefit from its success. This means that if, for example, UBS shares increase in value, the company behind them increases in value. Bitcoin, on the other hand, is not backed by any asset or company. Bitcoin therefore has no intrinsic value. Supply and demand determine its value.

● The stock market is managed by state institutions, while Bitcoin is decentralized and is not controlled by any central authority.

● The costs of trading shares on the stock exchange are relatively high. The transaction costs for cryptocurrencies are low.

● Access to stock markets is controlled and limited in time. Cryptocurrencies are accessible to everyone, everywhere and at all times.

Stock markets fluctuate strongly, especially in times of economic uncertainty. Investors tend to think about buying gold. Have you ever heard the term "digital gold"? Bitcoin is often called digital gold. This is because, like gold, it has limited availability. Supplies of the rare metal gold are limited. And so is Bitcoin with its upper limit of 21 million Bitcoins that will ever come into circulation. Both gold and Bitcoin can therefore serve as a hedge against inflation. This is because the market price of a limited commodity tends to rise when the money supply increases. In addition, gold can look back over longer periods thanks to its stable value. However, Bitcoin and cryptocurrencies are still considered a risk asset and the Bitcoin price is behaving in the same way.

Interestingly, however, Bitcoin has clearly outperformed gold in terms of returns over the last ten years, from 2011 to 2021. Bitcoin rose by 70% by the end of 2021, while gold fell by 7%.

Is Bitcoin really so independent of the stock markets? For a long time it seemed so, if you look at the price of Bitcoin and the S&P 500 stock index with the 500 largest American companies. But in recent years, Bitcoin has begun to mimic the movements of the S&P 500. In 2018, for example, inflation and interest rate fears caused the stock market to collapse. In 2020, it was the COVID-19 pandemic. During these major slumps, the price of Bitcoin also fell along with the stock market.

Bitcoin and the stock market therefore appear to correlate. This is also because they are exposed to similar influences. On the one hand, there is the general situation and market uncertainty: economic uncertainty, recession, high inflation or geopolitical events are driving concerns about the future. This fear can have an impact on traditional financial systems and cause share prices to fall. The reverse is true when sentiment is positive.

The fact that stock market crashes are often followed by Bitcoin crashes has to do with investor confidence. When crypto traders hear about a downturn on the stock market, they tend to trade conservatively and sell. Which causes the Bitcoin price to fall.

Cryptocurrencies are a technical innovation and interact primarily with tech stocks. Since the growth of stocks such as Google, Amazon, Microsoft and co. has somewhat exhausted itself, investors see the next growth sector in cryptocurrencies such as Bitcoin. The more major investors invest in Bitcoin and co, the higher the value rises. Regulation such as investor protection or FINMA can also promote acceptance. And the greater their distribution and increase in value, the greater the chance that cryptocurrencies will once again perform more independently of the stock market.

Bitcoin is now seen by more and more small investors and large traditional institutions as an alternative asset class. Namely as a decentralized, digital currency with limited availability and high volatility. Bitcoin can be used to diversify your own investment portfolio. Diversification means spreading your assets across different asset classes in order to minimize risk or achieve a higher return.

Just like gold, Bitcoin serves as a hedge in the event of economic turbulence. Shares, on the other hand, are intended as a long-term investment with rather slow changes in value. Whereas Bitcoin is very volatile and can therefore gain or lose value quickly.

Today, in uncertain economic times with high , the traditional financial market is under pressure. Bitcoin can serve as a store of value here and has the potential to increase in value if the acceptance and spread of cryptocurrencies increases. It will then also be able to decouple itself more from the stock market and serve as a safe haven for investments.

The trend is pointing in the right direction. Bitcoin's popularity and trading volume have been on the rise for years. It is interesting to note that it still only accounts for a small percentage of the trading volume compared to shares or gold, for example. This is despite the fact that its increase in value has greatly outperformed other investment instruments in recent years.