August 28, 2018
If you thought the bitcoin hype was cooling off, think again.
Despite bitcoin’s crash after reaching nearly $20,000 towards the end of 2017, people are still showing strong signs of interest in cryptocurrency trading. VC firm Blockchain Capital reveals that 30% of millennials would rather own $1,000 worth of bitcoin over $1,000 in government bonds or stocks. And Robinhood, a no-fee stock trading app, announced over 1 million people have already joined their waitlist for early access to commission-free cryptocurrency trading.
But the rising popularity of bitcoin and other cryptocurrencies like Litecoin and Ripple raises several questions about the future of investing. Specifically, investors and traders will be looking to see how the integration of digital currencies into mainstream trades will impact traditional stock markets.
In pursuit of improving their market shares, businesses are identifying ways to ride the recent cryptocurrency-fueled frenzy. Similar to the dot-com bubble, investors are eager to pour capital into any business with the slightest cryptocurrency and blockchain affiliation.
While traditional stock market platforms might not support cryptocurrency exchanges, companies have taken to associating themselves with digital currencies to improve their own market valuations.
The LongFin Corporation, for example, saw its value soar to $7 billion after the company purchased a blockchain-powered global micro-lending solutions provider. The Eastman Kodak Company, known best for its photography services, saw the value of its stock double on the first day after announcing it creation of a photo-centric cryptocurrency. Even the Nasdaq is considering entering the cryptocurrency space once it matures, partnering with the digital currency exchange platform Gemini in the meantime.
Other organizations not explicitly associated with crypto have also benefited from the digital currencies’ performance on the stock market. Nvidia, for example, produces the computer chips used for mining bitcoin and saw their value improve in tandem with bitcoin’s rise. The tech company’s loose affiliation with crypto, however, insulated Nvidia shares when bitcoin’s price dropped. In fact, Nvidia’s shares rose by nearly 23% as bitcoin’s value plummeted.
When the bitcoin bubble burst in the first half of 2018, investors were concerned about how the digital currency would influence the stock market. But market watchers say cryptocurrency is still too small to make a significant dent in the stock market, and the correlation between crypto and stocks is decreasing.
Unlike tech stocks associated with the internet, which represented a substantial portion of the economy in the late 1990s, the total sum of cryptocurrencies in circulation today is smaller than companies like Apple, Google, and Microsoft. For a cryptocurrency crash to spill over into the broader stock market, currencies like bitcoin and Ethereum would need to be more widely adopted by both investors and companies. So far, the industries hit hardest by the rise and fall of crypto’s value include financial tech businesses and payment companies that support cryptocurrency transactions.
The bitcoin bubble burst was also not enough to deter investments in both bitcoin and other alternative cryptocurrencies like Litecoin, which has been called the silver to bitcoin’s gold.
Millennials, for example, trust digital currencies over traditional stocks and the number of bitcoin ATMs jumped from several hundred to over two thousand in a span of two years. After witnessing their parents’ wealth wiped out by the Great Recession, the estimates suggest that only one-third of millennials indicated to own traditional stocks, preferring instead to invest in digital currencies like Ripple and Ethereum. And bullish signals, as seen with bitcoin which recently broke resistance levels and saw a noticeable increase in bullish volume, point to the potential of buyers re-entering the crypto market now that the price is low.
One thing the bitcoin crash could influence is the confidence of investors. The psychology behind taking risks and speculating values in the stock market is the same train of thought investors brought to the crypto market, fueling bitcoin’s rapid ascent in the last year. An investor who poured significant capital into bitcoin only to watch its value drop, for example, might be more bearish and decide to unload other stocks that appear risky. All it would take is one strong sell-off to drop bitcoin’s value back down to the mid-$7,000s or even lower.
While it’s unlikely any cryptocurrency will reach bitcoin’s record high value of near $20,000 any time soon, investors should expect to see digital currencies making their way into the mainstream marketplace. Companies have already seen the financial benefit of associating with cryptocurrencies, and more and more tech organizations will likely adopt a similar mindset to strengthen their own stock market valuations. Far from a fad that dominated 2017, cryptocurrencies will continue to be a factor influencing investor decisions and may even appear on traditional stock market indexes in the near future.