by Gil Gildner
For the Dow Jones Industrial Average (DJI), the first ten trading days of 2016 faced a crash of over 1400 points. The S&P 500 is down almost 8%, and the Nasdaq is down over 10%. This makes for the worst first two weeks of a year, ever.
Stock exchanges worldwide, whether the NYSE, the Shanghai Composite, the UK’s FTSE 100, or the Nikkei 225, are in the midst of a sharp bear market and are seeing disappointing losses. Even as the global economy begins to dip, one consistency among all markets remains the same: they are reflections of artificially regulated economies utilizing unstable fiat currencies.
The majority of Asian markets ended with a loss on Friday. The Shanghai composite lost 3.51%, while the Shenzhen composite lost 3.4%. In total, the markets have lost around 20% in value since the high of December 22nd. The Japan’s Nikkei market has lost almost 10% since the first day of 2016. This is important since, as a Goldman Sachs report revealed, over 80% of Bitcoin is exchanged for Chinese yuan.
On January 4th, when China’s central bank issued drastic policy changes and the markets were in the middle of a steep crash, investors from China fled the yuan for BTC, helping prices of BTC rise to highs of well over $440. One of the primary benefits of using cryptocurrencies like Bitcoin is that they circumvent problems with the use of traditional currency issued by central banks, which is inherently risky since it can be controlled by the regulating power. This sort of interference leaves common users vulnerable to policy changes made by the regulators, which in turn can leave investors at a loss when the central bank devalues the monetary system, as the People’s Bank of China is in the process of doing.
In any free market, values will fluctuate. Bitcoin has also seen a slight dip in valuation over the past week. However, Bitcoin’s dip has mostly been in regard to news articles and organizational problems within the technology’s developer community. Overall, Bitcoin has risen in reaction to every traditional stock market drop, especially the recent Chinese crashes.
Even considering Bitcoin’s dip in the past few weeks, the cryptocurrency has held value much better than stocks in the long run. The Dow Jones Industrial is down -8.72% from two years ago, while BTC is up 195%.
While cryptocurrency is still not widespread and diversified enough to offer dependable stability for investors, it becoming increasingly apparent that even traditional stocks can’t be trusted in a volatile market situation. Though bitcoin and other cryptocurrencies are seeing more and more intrusive regulation by government entities and central banks, they are still far enough removed from the mainstream market that a valuable shield exists between faulty monetary policies and the price of bitcoin.
With a flurry of worldwide economic problems on the immediate horizon, including the cessation of sanctions on Iran, the dropping price of oil, the rising price of gold, and uncertainty in Europe, we’re definitely going to see interesting patterns emerge in the relationship between BTC and traditional stock markets.