There is a lot of worry and concern surrounding bitcoin’s price as of late. While the asset has done well these past two months and maintained its position above the ,000 mark, some analysts and industry leaders – such as Changpeng Zhao, the chief executive of Binance, the world’s largest and most popular cryptocurrency exchange by daily volume trading – are warning that BTC’s price is in a shaky position, and in danger of enduring another crash like the one it experienced in March of this year.Changpeng Zhao: BTC Is Still Tied to the Stock MarketOne of the big issues with bitcoin is that it is allegedly tied to the stock market, meaning that whatever direction that market decides to take, bitcoin will likely follow. If the S&P 500 decides to travel north, bitcoin will do the same. If
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There is a lot of worry and concern surrounding bitcoin’s price as of late. While the asset has done well these past two months and maintained its position above the $9,000 mark, some analysts and industry leaders – such as Changpeng Zhao, the chief executive of Binance, the world’s largest and most popular cryptocurrency exchange by daily volume trading – are warning that BTC’s price is in a shaky position, and in danger of enduring another crash like the one it experienced in March of this year.
Changpeng Zhao: BTC Is Still Tied to the Stock Market
One of the big issues with bitcoin is that it is allegedly tied to the stock market, meaning that whatever direction that market decides to take, bitcoin will likely follow. If the S&P 500 decides to travel north, bitcoin will do the same. If the stock market experiences a crash, bitcoin won’t be far behind, and this is something that greatly worries Zhao.
In a recent interview, he warns listeners:
The stock market is probably a thousand times bigger than the crypto market. When that goes down, and a lot of people are losing a lot of money, many of those people who have crypto investments will want to convert those investments into cash. It has a drag down effect on asset classes, pulling them down.
While we’d like to assume that the crypto market is fully independent of outside forces, figures like Zhao seem to think differently, and he’s warning that while bitcoin is stable enough, people shouldn’t be reading too much into its properties. He continues to say:
People should not take the description of bitcoin as a safe haven too literally.
This is one of the issues that bitcoin has come face to face with during recent months. While many of us would like to assume that bitcoin can potentially be used to hedge one’s wealth against inflation and other economic issues, this may not be entirely accurate given that bitcoin is still vulnerable to volatility and price swings.
Can It Really Hedge One’s Wealth?
We got a firsthand glimpse of this fact last March when the currency fell into the high $3,000 range following the spread of the coronavirus pandemic. Just a month before, the asset had been trading for well over $10,000, and yet within weeks, the spread had proven so devastating that the currency managed to knock off close to 70 percent of its overall value.
While the asset has indeed recovered since then, this kind of activity for bitcoin is frightening, to say the least. The idea that such a well-standing financial tool could lose so much of its price in such a short period doesn’t place bitcoin in the strongest position, and leaves one wondering how capable it truly is of diversifying one’s portfolio and protecting one’s financial future.