Bitcoin is a mess right now, and Wall Street is a big reason why.
Once hailed as a revolutionary product that would change finance as we know it, Bitcoin is now acting like just another stock.
Right now, its price is $63,057, down 1.05% in twenty-four hours. The entire crypto market is not doing any better, with a total market cap correction of -0.75% dragging it down to $2.2 trillion.
Bitcoin’s intraday trading volume has also dropped by 41.88%. So what’s going on? Why is something that’s supposed to be a hedge against traditional markets suddenly behaving like just another investment on Wall Street?
Wall Street’s stranglehold on Bitcoin
On the same day Bitcoin dipped, U.S. equity indices were on the rise.
The S&P 500 closed at 4,500 with a 1.36% increase, the Dow Jones hit 35,000, up by 1.62%, and the Nasdaq closed at 14,500, showing a 1.49% rise.
This surge can be tied to macroeconomic events like the Federal Reserve’s decision to cut interest rates by 50 basis points three days ago.
Traditionally, when interest rates drop, risk assets like stocks and even cryptos get a major boost. But what we’re seeing right now isn’t quite that.
Institutional adoption, the launch of Bitcoin spot ETFs, and a shared investor base are some of the culprits.
Recent ETF inflows tell us more. On September 20, Bitcoin spot ETFs saw a net inflow of $91.9965 million.
Grayscale Bitcoin Mini Trust ETF had an inflow of $13.3728 million. Fidelity ETF FBTC led with $26.123 million in a single day, followed by Ark Invest and 21Shares ETF ARKB with $21.9938 million.
In bullish phases for equities, Bitcoin often surges. But when stocks drop, Bitcoin crashes harder.
The dangers of Bitcoin’s Wall Street connection
Let’s break down the problems with this little bond.
First, there’s increased volatility. Bitcoin has always been volatile, but now it’s even worse. After the Federal Reserve’s recent interest rate cut, Bitcoin jumped 3.5% to $62,417, only to drop again.
Second, market sentiment is now a big factor. Bitcoin’s price movements are increasingly tied to the mood on Wall Street.
Third, broader economic factors are now at play. Bitcoin is now influenced by things that shouldn’t matter.
Fourth, the regulatory risks are real. The intertwining of Bitcoin and stock markets means that regulations on stocks would affect cryptocurrencies too.
Next, retail investors are going to suffer. Without the tools and insights of institutional investors, regular folks often make emotional decisions.
If the stock market tanks, retail investors might panic-sell, causing a domino effect on Bitcoin prices.
Also, market manipulation becomes easier. The link between Bitcoin and stocks opens the door for smart money to manipulate both markets.
A big move in stocks could be used to nudge Bitcoin prices in a desired direction, undermining confidence in both.