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Did Equities See a Domino Effect from Cryptocurrencies?

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SPX versus bitcoin

The recovery of cryptocurrencies could be linked to the equity market slump last week. In contrast, the cryptocurrency market rebounded last week. As shown in the chart below, the S&P 500 Index (SPX-INDEX) (SPY) has fallen about 9% since the last week of January. Though the end of January saw a drop for both bitcoin as well as the SPX Index, bitcoin has recovered about 40% of its losses.

If equities keep falling, there’s a chance that investors could temporarily be attracted to cryptocurrencies. The overall acceptance of blockchain and cryptos in general could also rise. The concept of stablecoins, or digital tokens that provide more stability and security, is also entering the market. To protect against the theft of cryptocurrency funds (ARKW) (ARKK), cyber insurance has become the fastest-growing insurance type in the US.

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Risk takers

Many market analysts also assume that the rout of the cryptocurrencies could have led the equities to slump. Both have experienced reasonable price gains in the last 12 months. Risk takers may be interested in investing not only in equities but also in cryptocurrencies.

The SPX Index has fallen almost 7.2% since the beginning of 2018, while during the same timeframe, bitcoin’s falls have been nearly double the decline in the S&P at approximately 14.2%. As of the week ending February 9, the implied volatility in bitcoin was at 145%, while that of the S&P Index was at 31.5%.

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