Despite its decentralized nature, Bitcoin and the cryptocurrency market as a whole are under significant pressure from traditional stock markets. Authoritative global exchanges, such as the New York Stock Exchange (NYSE), NASDAQ, as well as some international exchanges, including the London Stock Exchange (LSE) and Shanghai (SSE), play a key role in shaping sentiments in the crypto market. This article explores how traditional exchanges influence Bitcoin, what relationships can be traced between traditional assets and cryptocurrency, and why this interaction is so important for analyzing and forecasting Bitcoin's movements.
Influence of the US stock market: NYSE and NASDAQ
The New York Stock Exchange (NYSE) and NASDAQ are the primary sources of financial activity in the US and also influence the global market as a whole. Bitcoin, being a high-risk asset, often correlates with movements of the stock indices of these exchanges, such as the S&P 500 and NASDAQ Composite.
When investors demonstrate optimism toward the stock market, it can also trigger interest in riskier assets, including Bitcoin. For instance, the period from late 2020 to early 2021, marked by a rise in the S&P 500 index, coincided with a sharp increase in the price of Bitcoin. This positive correlation emphasizes that during periods of economic upturn, when stock indices rise, investment in crypto assets also increases.
However, this relationship also works in the opposite direction. During significant downturns, such as the stock market crash at the beginning of the COVID-19 pandemic in March 2020, investors tend to avoid risks and invest in safer assets like gold or treasury bonds. During this period, Bitcoin experienced a sharp decline alongside major indices, although it later managed to recover due to improved economic prospects.
Influence of international exchanges: London Stock Exchange (LSE)
The London Stock Exchange (LSE), being one of the largest in Europe, influences European and international investors, among whom are participants in the cryptocurrency market. Europe is a key region for Bitcoin, as it is home to major companies interested in using blockchain technologies and cryptocurrencies, such as Revolut and various banks actively developing crypto projects.
The connection between Bitcoin and European exchanges can be observed during moments of political instability in the European Union. For instance, during the Brexit period in 2016, the UK stock market experienced significant fluctuations, which raised concerns among investors and led some to turn to Bitcoin as a 'safe-haven' asset. Although this behavior is not always observed, periods of uncertainty in Europe often lead to investor interest in crypto assets, which is also reflected in the price of Bitcoin.
Influence of Asian markets: Shanghai Stock Exchange (SSE) and Tokyo Stock Exchange (TSE)
Asian stock markets, including the Shanghai Stock Exchange (SSE) and the Tokyo Stock Exchange (TSE), play an important role in the cryptocurrency market, as Asia has long been one of the main regions for trading crypto assets. Although China has tightened cryptocurrency regulations in recent years, the influence of Asian markets on Bitcoin persists due to the activity of private investors and traders.
The Shanghai Stock Exchange, for example, exerts an indirect influence on Bitcoin. Many Chinese and Asian investors view Bitcoin as an alternative to national currencies and stocks. During an economic downturn in China or when restrictive measures are implemented, as occurred in 2021, there was an increase in demand for Bitcoin from Asian investors. For example, significant fluctuations in Bitcoin in 2021 often coincided with news from China about bans and regulations in the cryptocurrency industry.
The Tokyo Stock Exchange also has some influence on cryptocurrencies, especially amid the sustained popularity of cryptocurrencies in Japan and the presence of numerous cryptocurrency exchanges based there. In 2020, Japan became one of the first countries to approve legislation regulating cryptocurrency exchanges, which strengthened Japanese investors' trust in digital assets and also supported their popularity in Asia.
How stock indices serve as indicators for crypto traders
Stock indices, such as the S&P 500, NASDAQ Composite, and Dow Jones index, are often used by crypto traders as benchmarks for analyzing sentiments in the crypto market. A steady rise or fall in these indices can signal a similar dynamic in the crypto market. For example, if the S&P 500 shows steady growth, it may indicate that investors are inclined to buy assets, and Bitcoin may also rise.
Analysts and traders are increasingly using data from technology companies' stocks, such as Tesla and MicroStrategy, which actively invest in Bitcoin, to predict movements in cryptocurrencies. For instance, in early 2021, when Tesla announced its purchase of $1.5 billion in Bitcoin, the cryptocurrency immediately received a strong momentum for growth.
