Can Cryptocurrency Hedge Against A Stock Market Crash?


You may be asking yourself: Can Cryptocurrency hedge against a stock market crash? The answer to this question will likely depend on your situation. If you are looking to invest in a safe, predictable way to protect your investment, Unlike traditional stocks, cryptocurrencies are not as volatile as the stock market. In fact, there are those who say that cryptocurrency can buy expensive things and it is also the most profitable investment.

Bitcoin’s correlation with the S&P 500 is low, but it has performed better during stock market crashes. For instance, the S&P 500 fell by 60% from August to mid-December 2018, while Bitcoin dropped by 7.5%. In this case, you would have experienced less account drawdown in Bitcoin. In the 2020 crash, Bitcoin recovered more quickly. The currency even surpassed its highs in February.

Another reason crypto is considered an effective hedge against a stock market crash is that it displays a low correlation with traditional assets. Although the S&P 500 and Nasdaq have been on a downward trajectory this year, the S&P 500 recently had its worst week since March 2020. While this increased correlation is still an advantage for investors who are less experienced in cryptocurrencies, it is not ideal for those who don’t have the background knowledge to invest effectively.

Can Crypto Be A Hedge Against A Stock Market Crash?

While some believe that bitcoin is not a hedge against a stock market crash, this is far from certain. Bitcoin is a volatile asset, and its price fluctuates wildly. However, this volatility is a risky proposition. You must be ready to invest in crypto and be patient. A successful strategy involves learning how to avoid common mistakes and learning from past investors.

Whether  Cryptocurrency is an effective hedge against inflation is an important one. bitcoin has become the ultimate momentum trade, and a 40% drop in price could trigger an inflation-related crisis. While some analysts have attempted to gauge the current fair value of bitcoin, others are struggling to point out important price levels. Analysts say that bitcoin’s current fair value is $38,000 and compare its volatility to gold, a popular hedge against inflation and economic uncertainty.

Before investing in Cryptocurrency, investors should review their portfolios. Once the market recovers, they should check their investments and determine what they’ve been missing in recent months. They can then choose to diversify their portfolio by purchasing stablecoins and fiat currencies. The liquid is one of the stablecoins that offers a range of fiat currencies, including GUSD and USDC.

There are several pitfalls to crypto. Most financial planners recommend that investors buy Cryptocurrency at no more than five percent of their portfolio. However, it’s worth investing in crypto as a haven asset. Unlike a traditional hedge, you’ll never know when your investments will turn into a dump.

In the early days of the COVID-19 pandemic, the stock market suffered a severe crash. Many retirees and investors were scared of the impact of a market crash. However, despite the risk, they were able to get out of it by diversifying their portfolio. A diversifying portfolio of stocks, bonds, cash, and cash-value life insurance is a good way to minimize the effects of a stock market crash.

As Bitcoin becomes more intertwined with the stock market, it may be difficult to distinguish between it and a traditional bond. Bitcoin’s correlation with the stock market has been highest since September 2020. When interest rates start to increase, you might have to consider switching to a different investment strategy. Consider investing in stocks that pay stable dividends if you’re not sure.

Final Word

Bitcoin and other cryptocurrencies have been on a wild ride in recent weeks. Bitcoin and Ethereum, the two top digital assets by market cap, have dropped by more than 40%. Bitcoin, for instance, hit an all-time high of $69,000 in November but has only rebounded to around $36,850. In contrast, ether, tied to the U.S. dollar, has gained 56% and is up nearly 40% since November’s record high.