The cryptocurrency industry has had a rough time lately. In the past few weeks, Bitcoin has dropped over 40% since its recent high; Coinbase, the platform that enables investors to buy, sell, and trade cryptocurrencies with actual currency, has been nearly bankrupted in its stock market value (Coinbase is a publicly-traded company in the traditional stock market); and so-called crypto billionaires may have disappeared entirely.
As a reminder, cryptocurrency is derived from blockchain technology, which is a series of irreplicable code “mined” from computers solving complex mathematical problems on a continual basis. Think of each “coin” of cryptocurrency as a link in a chain – to own a “coin” is to own an original piece of code that can’t be reproduced or replicated – which theoretically can’t be stolen or confiscated by any government body (NFTs operate similarly). Cryptocurrencies operate without oversight and have no governing body, their value determined purely through supply and demand in a decentralized worldwide market.
And, though intentionally designed to work around government policy and operate independent of economic downturns, cryptocurrency seems to be finally succumbing to mainstream currents. It seems that with so much mainstream acceptance, the same economic cycles that affect everything else can affect the volatility of fintech.
In fact, concerns over volatility have been growing overall against all other concerns with crypto over the past six months.
Interestingly, concern over the legitimacy of cryptocurrency is also on the rise, indicating that it may be linked to its volatility (“how can something so volatile be legitimate?”).
Despite this, investors continue to treat cryptocurrency the same as they have for some time, as a long-term growth asset.
This may be a result of younger people (who make up the predominant investor demographic of crypto) who have a lot of time to see their investments grow and therefore worry less about the overall ups and downs of the industry.
Regardless, the data does demonstrate that concerns over crypto volatility are on the rise, especially over the last few months and among those considering whether or not to invest.
Despite volatility potentially driving new investors away from crypto, those who are worried about the health of the stock market seem to be craving an alternative to the coming recession while they can.
Those who are more concerned about a looming stock market crash are also more likely than not to have either invested in crypto or be interested in investing in it. On top of that, those who aren’t worried about their financial security in the wake of a stock market crash are also more likely to have invested in crypto.
This fascinating correlation perhaps demonstrates that the average crypto investor feels confident that the emerging fintech is buffered against economic downturns, despite its own recent collapse.
Current world events may be playing a factor in this. While typical economic currents can push investors toward some types of assets over others, bigger events, such as pandemics and wars can accelerate this typical investment and divestment behavior.
Nearly half of those interested in cryptocurrency (45%) remain unaffected by world events, such as the war in Ukraine. However, another third (34%) report being less inclined to invest in crypto while large-scale turbulence moves through the economic world.
This type of global upheaval, in fact, seems to affect stock market investors much more significantly than it does crypto investors.
So, even though the values of some of the most prominent cryptocurrencies in the world have entirely collapsed, and the stock market limps along in fear of a potential recession, confidence in crypto remains higher against the backdrop of a major international war.
Perhaps this trend is more closely linked to the overall perception of the strength of the U.S. markets. Since March, respondents have lost all faith.
And that overall negative perception is relatively evenly distributed among people who either do or do not have investments in stocks and/or bonds.
But the same can’t be said for those invested in cryptocurrencies, where there exists a clear skew in opinion.
Despite all the concerns over volatility, those who are invested in crypto confidently remain positive about the current strength of the U.S. stock market. The reasons behind this trend are not entirely clear, but they do imply that crypto investments have a tendency to worry less about economic cycles than market investors do.
Time will tell if this faith in cryptocurrency (despite its current downturn) is well-placed or not, but CivicScience will continue to track the moving financial cycles between blockchain technology and traditional financial markets.