The world was shocked on Monday as stock markets took a plunge, continuing the trend into Tuesday.
The Dow Jones dropped 1175 points (4.6%) on Monday, the largest drop seen this century! The fall sparked a global sell off as other stocks also plummeted following months of continuous growth.
The S&P 500 stock index fell 4.1%, with the second largest stock exchange Nasdaq also falling 3.7%.
In the UK, The FTSE 100 index of the world’s leading companies suffered a 1.46% loss. The news has sent tumours around the globe as other market prices also begin to fall.
What’s Causing The Stock Market Sell Off?
It begs the question, what’s going on and why is this happening.
The news is dominating headlines around the world, but none of them seem to mention cryptocurrency.
It may simply be coincidence, but the turbulence seems scarily connected to the recent drop it the price of Bitcoin and other cryptocurrencies.
Bitcoin fell as much as 69% since it’s last all time high (ATH) in December 2017. On the 17th December the Bitcoin price saw record highs of $19,435, 210% higher than the $6250 low seen on Tuesday 6th February.
Bitcoin is and always has been highly volatile and although new interests are looking at these recent dips as something to be wary of, the history of the Bitcoin market has been often times even more volatile.
So why the sudden plunge in the stock market? No one knows for certain, and the efforts made by the mainstream news offer no solid reason. Is Bitcoin connected? Are investors taking advantage of the low prices?
This except from the BBC attempts to answer ‘Why is this happening?’:
Investors are reacting to changes in the outlook for the American and global economy, and what that might mean for the cost of borrowing.
The stock market sell-off accelerated on Friday when the US Labour Department released employment numbers which showed stronger growth in wages than was anticipated.
CMC Markets analyst Michael McCarthy said the wage numbers “blew lower interest rates out of the water”.
“The share selling….reflects a higher than previously anticipated interest rate environment,” Mr McCarthy said.
In response to that, investors moved to sell out of stocks and put money into assets like bonds which benefit from higher interest rates.
“This isn’t a collapse of the economy. This isn’t a concern that markets aren’t going to do well,” said Erin Gibbs, portfolio manager for S&P Global Market Intelligence.
“This is concern that the economy is actually doing much better than expected and so we need to re-evaluate,” she said.
Interesting analysis, and although this could be a completely healthy correction, we’ve come up with some plausible theories of our own.
With the insane success the cryptocurrency markets saw in 2017, stock investors have undoubtably been keeping a keen eye on the prices of popular crypto’s such as Bitcoin, Ethereum, NEO and Ripple, potentially looking for a good entry point to ride the wave and make more profit.
Even following the recent dip in prices, the total cryptocurrency market cap is still over 1,600% higher than it was 12 months ago.
Now the Bitcoin price has fallen 69%, it makes sense that some stock investors may be keen to pull out some of their holdings and invest while the prices are low!
Another theory could be that the market is being manipulated. Prices could be being artificially lowered in order to tempt investors to put more in to try retain people’s confidence in the markets and defer them away from the cryptocurrency market.
Of course these points are purely speculation. Nobody knows for certain and only time will tell.
It does however remind us of a 30 year old article published in The Economist in 1988 predicting a global financial meltdown in October 2018!
THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.
Experts have been predicting a global financial crisis now for years. The global national debt totals a staggering $69 Trillion at the time of writing, with the US alone set to borrow another $1 Trillion this year!
This is completely unsustainable and without a doubt must come to a sour end.
Could this be the beginning of the end for the current financial system? Could fiat be about to be replaced by the fabled ‘One world currency’?
Let us know your thoughts. Is the stock market price decline connected to the Bitcoin & crypto markets?
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