What makes the crypto market move ? Relationship to stock markets, currency, politics ? Where do you see the cryptos in the future, a good bet or rather risky ?
Any interesting study on this ?
Good day, Denise
There are many theories on what the crypto markets are most correlated with. We believe that the crypto markets are most related to the liquidity cycle, specifically being changes in the money supply, interest rates, bond market liquidity, etc. When liquidity in the system improves drastically, the crypto markets tend to perform well, and this can be related to interest rates decreasing, improved liquidity in the bond market from QE, increases in the money supply via fiscal stimulus, or other liquidity measures like the BTFP program we saw earlier this year.
There is some relationship with the stock market, politics, world currencies, etc., but for bitcoin it's mostly a function of supply and demand. Every four years the amount of new bitcoin that can be issued/mined drops by half, causing less and less sell pressure. Its total supply is capped at 21 million coins, and roughly 19 million of those have already been mined, with the remaining 2 million to be mined over the next ~100 years. Roughly 88% of all bitcoins have not been moved/sold in over 3 months, which means that individuals who wished to buy in the past 3 months needed to buy from only 12% of the available float. This is where its supply/demand dynamics come into play.
The crypto markets are inherently risky. It is a new asset class, which is undergoing regulations and slowly being adopted by institutions. The crypto market may move higher in the future, but we expect lots of volatility, some collapses in certain smaller coins, and lots of fear and uncertainty.
Fidelity has put out some good research on bitcoin, Coinbase has lots of good intro articles, and we have also written about the topic in previous Canadian MoneySaver editions.