Cryptocurrencies have always been analyzed as assets that would work as a hedge against bear trends in the world stock market. However, the United States, China and South Korea have losses in the equity markets and virtual currencies are falling at the same time. This leads to the question of whether virtual currencies are related to traditional financial markets or not.
Virtual currencies are considered long-term viable investments to preserve value. The younger populations are enthusiastic about Bitcoin (BTC) which works as a store of value such as gold. However, as the global economy weakens for 2019, virtual currencies seem to follow a similar path.
It is important to mention, however, that a lack of correlation does not mean that there is an inverse correlation. The cryptocurrency market usually showed a lack of correlation with the global stock market or even gold. The traditional financial market operated independently and did not affect the encrypted market.
Over the last few weeks, virtual currencies have fallen between 30% and 50%. The same happened in the equity markets as investors feared a further fall in stocks. One of the main reasons behind this major sale in the US stock market is the trade war with China.
For example, Shenzhen Composite fell 3.3% and the Shanghai Composite lost 2.5%. Something similar happened in South Korea, where Kospi lost 1.2% in recent days.
According to the associate director of Prudential Brokerage, Alvin Cheung, there is a negative sentiment around the trade war between China and the United States. During the next week, both presidents, Xi Jinping and Donald Trump, will meet in Buenos Aires. He explained that there are investors who closely observe how the meeting will end.
On the matter, he told SCMP:
"There is a lot of negative news about the United States that criticizes China before Trump and Xi meet next week, and this has affected the sentiment.The contrasting messages could be the United States trying to win some bargaining chips for the next Investors are on the sidelines, looking closely to see if the meeting will produce concrete results. "
It seems that traditional stock markets are trying to eliminate high risk stocks. And this is also affecting virtual currencies. At the same time, the crypto market was hit by the conflict between supporters of Bitcoin ABC and Bitcoin SV.
There are some experts who believe that virtual currencies would function as a reserve of value if there is a debt or a currency crisis. This could be the case of Zimbabwe or Venezuela. Both countries have recorded high rates of inflation (hyperinflation), their currencies can no longer be used because of their volatility and cryptocurrencies are taking over as new tools to save money or just to process transactions.