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While financial pundits and economic speculators try to carve out a correlation between cryptocurrency and stock market trading, one realization can be established for sure: the correlation isn’t that profound, but it still leads to startling consequences for both the world of crypto and stocks.
Rather than trying to establish a meaningless trend between the two financial entities, more pertinent questions need to be asked. How does the rise of cryptocurrency affect stock market trading? Does it pose significant threats to millions of stock traders all around the world, or integrates well with the already established stock exchange? Unwinding these questions facilitate the pursuit of a more sophisticated understanding of a highly tokenized economy.
The crypto genie cannot be contained anymore. In a world that has suffered at the behest of centralized banking systems and encroachment in the financial privacy of people, the rise of cryptocurrency is not unwarranted. People are swift to adopt transaction means that guarantee them anonymity, privacy, and most of all: freedom from the clutches of governments and regulators. As digital assets, in the form of cryptocurrency, are becoming omnipresent, it is essential to assess how these integrate with traditional trading practices.
Can a relationship between cryptocurrency and stock trading Be established?
The foundational principle of Cryptocurrency was this: financial transactions needed to be free from third-party snooping such as central banks. This is the very reason that the price and volatility of crypto sources such as Bitcoin operated independently to those of traditional financial assets such as stocks. The crypto infrastructure exists separately, but things are much more complicated than this seemingly simple statement.
Although cryptocurrencies existed independently of economic indicators and speculation, it still operated under the most fundamental aspect of any economic entity: the legendary law of supply and demand. Cryptocurrency and all its derivatives were still controlled by the demand stipulated in financial markets, and this brought it closer to the traditional stock exchange via the BTC/USD trading tool. Traders from all around the world such as those working with FX-List.com/stock-forex-brokers saw a lucrative opportunity to place their trades in this currency pair, soon a domino effect was set in place, one that was riled with speculators and currency bubbles that added to the volatility of cryptocurrency.
What started out as a beautiful journey of financial independence for Crypto soon translated into manipulation and control by traditional trading tools such as the stock exchange.
The consequences of interdependence
If this interdependence between cryptocurrencies and stocks can be established, what do the consequences look like?
In a nutshell, crypto will abide by all laws and regulations that are panned out by the movement of traditional markets. If it follows the same path, its popularity is likely to take a hit. Because the promise of crypto holds the idea of independence central to it, falling prey to the same centralized financial structures can bring about a crushing blow to this short-lived affair.
But, at the same time, there is an inevitable silver-lining for crypto enthusiasts. The correlation between traditional market assets like stocks and crypto will bring the shrouded currency to the global economic mainstream, which will add to its refinement and maturity.
When the crypto assets take an annual turn in the global trading ecosystem, they are more likely to achieve stability and strengthen the institutional guarantees of the currency bringing in more lucrative investors.
The consequences for cryptocurrencies
Since a correlation between crypto and stocks can be established, what stems from this relationship is more important to discuss. If you stay updated with any news of cryptocurrency, you are likely to hear a recurring statement: crypto cannot be trusted because its volatility cannot be attributed to any distinguishable trend. But, when the interdependence of crypto and stocks becomes significant, this is going to change.
The following process initiates, once the trading volumes of crypto assets increase because of the correlation. Institutional investors and venture capitalists join aboard the crypto bandwagon and the investment portfolios all around the global trading market accumulate crypto assets. This phenomenon serves two important purposes: Firstly, it reduces the volatility of cryptocurrencies because the market confidence is reinstated with the entry of high-profile investors and traders.
Secondly, it also surges the demand for crypto assets which makes it much more lucrative because the supply of cryptocurrencies is not regulated by any government entity.
The future of trading?
The introduction of crypto assets in the list of traditional stock assets also significantly impacts the future of trading. Traditionally, all stock trades follow the settlement method. The settlement method is a convoluted process that takes days or even weeks to execute. It is riled with inefficiencies in the form of intermediaries, like clearinghouses and exchanges as well as external regulators. With the adoption of cryptocurrency transaction systems, like the Blockchain technology, the settlement time of stock trades could decrease from a matter of days to minutes.
Furthermore, since the Blockchain transaction stream is transparent to all stakeholders, the need for external audits and third party regulation can altogether be avoided. This will not only decrease the cost of making transactions but also can bring about a seismic increase in the savings of everyday traders. Every trade can enjoy a reduced commission and fee, which can in turn increase the volume of trades executed every day.
Conclusion
Whenever there is a rise of a novel financial system, it cannot exist independently. The global trading ecosystem is intimately integrated with forex and stock exchange, and cryptocurrency will have to make inroads into the same mesh. Seasoned financial analysts all around the world are drawing similarities between the emergence of crypto technologies and the invention of the internet in the late 1990s. In a new financial order ruled by the likes of cryptocurrency, only those traders can dominate the stock market who stay updated with the nuances of cryptosystems. Only then can they harness its potential, and use it to make a personal fortune.
