As stocks swoon, can crypto get its mojo back?

Both Wall Street and digital assets are taking big hits.

| More on:
women with her fingers crossed and eyes shut

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tuesday was a painful day for stock market investors, with the Dow Jones Industrial Average (DJINDICES: ^DJI) falling more than 1,275 points and the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) dropping 4% to 5%. Market participants often hope for at least a modest bounce after a tough day, but Wednesday morning didn't suggest any such relief was forthcoming. Futures contracts on all three stock indexes were down slightly as of 8:15 a.m. ET.

Some investors in cryptocurrencies have believed that digital assets would be able to provide some valuable diversification in the event of a stock market decline. Unfortunately, that hasn't been the case over the past couple of years, as the prices of Bitcoin (CRYPTO: BTC) and other popular cryptocurrencies have tended to track closely in line with the Nasdaq. Now, though, some digital investors are asking whether Bitcoin and its peers can regain the positive momentum that took them to all-time highs last year even if stocks stay mired in a bear market.

Crypto winter continues

Cryptocurrencies certainly haven't escaped the rout that started on Tuesday. Bitcoin has fallen 11% in the past 24 hours and now stands just above the $20,000 mark. Ethereum (CRYPTO: ETH) is down almost 9% since this time Tuesday, falling back below $1,600 even as proponents of the smart-contract network point to the coming Merge event as a landmark moment for the digital asset.

Given the immediate cause of the sell-off across several asset classes, it's not terribly surprising to see Bitcoin, Ethereum, and their crypto peers losing significant ground. August's inflation reading of 0.1% didn't seem like all that big a deal, but given that it came in the face of plunging gasoline prices, many were surprised not to see a modest drop. Moreover, as signs of more entrenched inflationary pressures appeared in different categories of goods and services, market participants believed the odds were better that the Federal Reserve would raise interest rates even higher to protect the economy from allowing inflation to become a long-term problem.

Bitcoin has at times hailed itself as a hedge against inflation, given the fixed supply of the digital asset. However, now that a large financial market has emerged surrounding Bitcoin and other cryptocurrencies, the dynamics that affect institutional investors now play a key role in price movements. In particular, when interest rates rise, those investors who rely on borrowed money in order to make leveraged investments in cryptocurrencies often have to pull back from their positions.

Can crypto break off from the stock market?

In that light, cryptocurrencies have in some ways suffered from their success in becoming mainstream assets. As regular investors become involved in the crypto markets, their behavior influences prices in the same way it influences stock prices.

However, it's unfair to paint all cryptocurrencies with the same broad brushstroke. For Bitcoin and Ethereum, their notoriety and popularity make them more susceptible to broader financial market influences. But for smaller digital asset projects that are just getting started, fundamental aspects of whether newer cryptocurrencies can add value and provide useful applications for potential users can outweigh the influence of broad market trends.

Both Bitcoin and Ethereum would need to triple in price from current levels in order to set new all-time highs. Those abrupt upward cycles have happened numerous times in the past, so counting the pair of digital asset leaders out is ill advised. In order to break its connection to the stock market, though, the cryptocurrency world will once again have to persuade investors broadly that its vision of the future can overcome traditional macroeconomic challenges. That's a tall order, but those who've bet against digital asset innovators in the past haven't fared well over the long haul.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Zip Co right now?

Before you buy Zip Co shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Zip Co wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has positions in and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Warren Buffett's $347 billion warning to Wall Street is ringing out loud and clear. History says this happens next.

Let's take a look.

Read more »

Warren Buffet
International Stock News

Warren Buffett nearly made his biggest investment since 2022. Here's what's holding him back.

Buffett said Berkshire came close to spending $10 billion, and he'd happily spend $100 billion.

Read more »

Happy man working on his laptop.
International Stock News

Here's why Amazon is a brilliant buy now (Hint: It's not e-commerce)

Fortunately for investors, cloud computing is going through a massive boom.

Read more »

A man looking at his laptop and thinking.
International Stock News

With Warren Buffett stepping down as CEO, will Berkshire Hathaway sell Apple stock?

Or will it find something else to invest in? Let's take a look.

Read more »

Man on his laptop standing next to data centres.
International Stock News

History says now is the time to buy Nvidia stock

History doesn't normally repeat itself, but it often rhymes.

Read more »

Woman relaxing and using her Apple device
International Stock News

16 words from Warren Buffett that should have Apple stock investors excited

Let's see what Buffett had to say and what it means for investors.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Prediction: Warren Buffett may be shifting out of his Berkshire Hathaway CEO role, but he's not done investing

Let's take a closer look at what may be ahead.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Here's why I'm not too worried for Alphabet despite Apple's potential new AI-powered Safari search

Investors panicked when the possibility was floated, but take a step back and look at the bigger picture.

Read more »