How Does Cryptocurrency Affect the Stock Market?
Effects on Local Markets
The rise of cryptocurrencies such as Bitcoin have minimal effects on the stock market at a local level. Stocks that are listed on local exchanges will remain as a part of investors long term portfolios as those who buy into cryptocurrency usually do so as a way of diversifying investments. Investing in cryptocurrencies will better protect long term investors, so adding cryptocurrencies to their portfolios is likely. However, doing so will not greatly affect the market at large as cryptocurrency will remain only a portion of most investors’ portfolios. The impact on localized financial markets will be positive as it gives investors greater opportunity to diversify their portfolios. These markets will enjoy being able to market to a greater customer base as they appeal to the young who look for alternatives to stocks. Once investing in one sector, a customer will certainly diversify their account, to include many forms of investment, including stocks. As cryptocurrencies trend up, they will generate support, but so will stocks. Investors will likely see crypto in similar fashion to stocks within the next few years.
Effects on the Global Market
Buying stocks internationally has always been a long and hard process that can create massive headaches for everyday investors. The rise of reliable cryptocurrency could very well create a downturn in stocks internationally listed as investing in cryptocurrency will be easier. The global market can also be less reliable, as countries with poor institutions can create poor motivation to invest. This can lead to uncertainty in these markets and discourage investors from moving funds to these markets. With the rise of crypto, international investors will have another place to move to instead. Cryptocurrency will have a greater effect in the international market for this reason. Many countries are unable to ensure a stable currency, giving cryptocurrencies a chance to greatly affect certain markets.
Effects on the Individual Investor
The individual investor will find that the cryptocurrency trends developing throughout the world will provide them with a great opportunity to diversify their account. While a small portion of a person’s portfolio will go to cryptocurrency, this will go generally unnoticed in the broader market as people avidly continue to buy into stocks. Diversifying a personal account will give an investor better chances at surviving economic downturns and will protect small scale investors. This has already begun to affect financial markets as they introduce crypto on larger scales to their customers. One will likely learn to watch for cryptocurrency trends to measure its effects on the stock market. This will allow for investors to find more opportunities to invest in different sections of the market at different times.
Cryptocurrency During Downturns
During an economic downturn, cryptocurrency can be seen affecting the stock market as a whole. While the stock market may be down twenty percent, many cryptocurrencies will be showing massive gains. This cryptocurrency trend can be accredited to short-term traders seeing cryptocurrency as more stable; however, these crypto trends shortly turn around. During these economic downturns, cryptocurrency can provide a temporary safe haven for investors but will ultimately prove to be short-term investments for downturns.