How does Bitcoin affect stock market?

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Bitcoin and other digital currencies become more competitive as an investment instrument. The capitalization of the crypto market exceeded $1 trillion, starting from $196 billion in 2020

Bitcoin and the stock market. The era of digital assets is on the threshold

Bitcoin or stock market? Some 3-4 years ago this question would sound strange, as most investors had the only course to follow. Crypto skeptics were sure digital assets could not have a long future; hence, Bitcoin and other cryptocurrencies had been far from competing with the stock market. Meantime, the situation changed upside down in 2020.

Safe harbors to resist inflation

The year 2020 unraveled the existing problems of centralized financial systems. During the recent 6 years the U.S. dollar lost more than 10% of its value, while under the pandemic conditions inflation rates are supposed to speed up. Digital currencies are considered as safe harbors intended to multiply holders’ funds.

Furthermore, investors accept the fact that cryptocurrencies perform this role even better than gold. For instance, the price of the top-rated precious metal increased by 17.21% within the year. In the meantime, the crypto market skyrocketed from $196 billion to $1 trillion (517% yearly growth). Hence, investors cannot ignore the sector anymore.

Institutional investors to change their preferences

What is the difference between Bitcoin and stock market? Digital currencies are considered more volatile; therefore, investors were primarily afraid of buying digital assets; meanwhile, the statistics show the crypto market is rapidly on-ramps. For instance, the S&P 500 chart displays the index increased by 13.49% in 2020. While talking about the Dow Jones chart, the index growth is only 5.54%.

Bitcoin headlines the crypto market growth, showing an increase of more than 500%, while the total market cap of the sector exceeds the capitalization of the top three world banks (JP Morgan Chase, Bank of America, and ICBC). As such, investors need to shift their preferences in favor of digital assets. According to statistics, 55% of the U.S. are interested in buying digital assets (growth from 36%), while the stock market also attracts 55% of the American investors (a decrease from 62%). Hence, the year 2020 is the meeting point of Bitcoin and the stock market.

Bitcoin and digital assets become gradually competitive

On the one hand, there is too early to say digital assets are on the way to replace stocks as the #1 investment instrument, but the progress of the crypto sector is evident. For instance, the U.S. stock market has the capitalization of $50.8 trillion; meanwhile, the development rates of the crypto sector are more rapid. What if Bitcoin were a company? At the beginning of 2020, it would have ranked among the 100 largest companies, but now the first crypto occupies the 9th place among the largest world companies, according to the market capitalization.

Furthermore, while talking about the most expensive stocks, Berkshire Hathaway ($350 000) and Lindt & Sprüngli AG ($87 800) are ahead of the first crypto.

The number of crypto skeptics decreases step-by-step, as they understand the real power of digital assets. For instance, PayPal and JP Morgan were among the most ardent opponents of cryptocurrencies, and the year 2020 showed they had changed their minds.

How would a stock market crash affect Bitcoin? The pandemic is still in progress; hence, the traditional economy is supposed to undergo difficult times, while cryptocurrencies continue to develop and revolutionize the world. The number of active unique blockchain addresses reached its all-time high on January 7, 2021 (940 647 crypto addresses).

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