By Alicia Maher
May 10 was an unforgettable experience for the crypto industry as the digital asset market went into a massive price crash. The majority of the tokens lost up to 10% of their value in a single day.
The recent event is the second time this year that almost all cryptocurrencies have been hit with adverse price action. Last month, the flagship digital token, Bitcoin, experienced about a 23.57% loss of value while Ethereum recorded 26.32%.
Meanwhile, the equity market in the United States also suffered considerable losses, with the S & P 500 shedding 11.07% of its value and the Nasdaq 100 recording a 14.93% loss.
Sell-offs More Pronounced in Crypto
Available performance metrics have shown that the cryptocurrency market is steadily undergoing more sell-offs than the equity market. The trigger to this has been the rising interest rates which have made investors opposed to taking a plunge in risky assets, which digital assets are due to their volatile price performance.
However, many industry insiders believe that the May 10 crypto market collapse triggered the equity market’s inability to maintain its brief market recovery of the previous week, culminating in the crypto market sharing part of the market correction.
It is worth noting that following the decision of the Federal Reserve to hike interest rates on cryptocurrency, a significant part of its plan; the industry now follows the performance pattern of the equity market. A market correction or recovery has a spillover effect on the crypto industry.
There has been a 30-day performance correlation between the U.S. equity market and the cryptocurrency market during the past couple of months. An increase in the equity index paves the way for an all-time high price for both top-performing digital tokens, Bitcoin and Ethereum.
The Growing Markets Correlation
As stated earlier, the two markets continue to have a growing impact on each other, so when one is on the rise, the other will also spike in value. On the other hand, if one, say, the equity market, is in a massive market correction, the crypto market will also follow suit.
Statistically speaking, both have a strong correlation coefficient where a particular index is achieved by one tends to have the same effect on the other; they tend to move in the same direction, not the opposite.
Furthermore, having a good understanding of how this relationship plays out means that industry players will also understand how the market’s direction affects one another and how to look out for price indicators, especially for cryptos.
It is also essential to look at how investors and traders in the crypto industry react to the recent market downtrend despite the external influence involved.
Bitcoin is still the dominant digital coin in the crypto industry. It has always been the model token whose on-chain metrics are used to track the performance of the crypto market, drawing inference from its interaction with external needs.