A downturn in markets will affect the crypto market

How problems in global financial markets can have a knock-on effect on crypto markets.

No one can know exactly when a market downturn is going to happen. However lately there have been various warnings that a market crash is on the horizon. Things are starting to look shaky.

Signs of a market downturn

At the moment there are several cracks appearing in the financial system at large. To sum up some of the problems; more people are registering for unemployment and there are problems with supply chains.

Additionally central banks are printing money, there are problems with the repo market and Evergrande. Evergrande is the second largest property developer in China who are highly indebted. There are also other property developers in China that are experiencing the same problems as Evergrande.

What will happen

Initially with a market crash there will be what is known as a pan sell off. Everything will go down in price at a very quick pace. This would include stocks, bonds, gold and cryptos. Gold and cryptos should recover their losses fairly quickly like in previous market crashes.

That is, unless it is that moment in time in the Bitcoin cycle (halving) when cryptos have their bear market. However at that point due to the turmoil cryptos could go up anyway.

However people are saying that Bitcoin and the stock market are becoming more correlated. This is correct in a sense, but not as much as people imagine. Bitcoin’s correlation with the stock market is weak.

The correlation is sometimes stronger and weaker in some years, but overall it is weak. Additionally in 2021 it is forming an inverse correlation.

A fantastic article to read about Bitcoin’s correlation which explains it all is on Decrypt. The article is called Is Bitcoin price correlated to the stock market.

It could certainly be that Bitcoin and other cryptos could act like safe haven assets. Bitcoin and crypto so far have not experienced a severe downturn like 2008. So we will need to wait and see what happens.