The Crypto Market Will Go Down When The Stock Market Crashes | The Economic Ninja

It. Today, I’m going to talk about what is going to happen in the crypto market and how it is going to crash when the stock market crashes. Now, first, I want to emphasize this. When I use the word crash, I don’t mean go away. I mean a severe downturn, a large percentage down between ten and 25%. And actually, ten is not a large percentage downturn. Right. And nothing happens overnight.

You know, barring, you know, what happened in 1987 with a one day crash in the 20 percentile, there’s nothing that’s new under the sun. There are every once in a while, one day crashes that take out stock markets that dump 15, 20%. There have been days in the crypto market, especially where we see, and I have personally seen my portfolio drop 25 plus percent in one day. Okay, so this question is asked a lot.

Now, I have been invested in crypto since the end of 2016, so I’ve not been in it for very long. However, what I have seen, and I have made quite a significant portion of my wealth through cryptocurrency, through trading of cryptocurrencies, I have seen big up days and bigger down days. And it really did sort of battle harden me for investing in stocks and assets that can drop and rise very fast.

And I learned a lot of lessons. And one thing that I learned, and people need to understand this, is that the crypto markets are 100% tied to the stock markets. I know people don’t like to hear that, but I’m going to explain why. And the reason why you need to understand this is because it’s going to give you a good perception of an idea of what’s coming in the future.

Because right now, we’re seeing stock market at all time high. But if you pull back a chart of the Dow Jones, you’ll see that it was made by doing this. And every once in a while, a really big drop. And then it took off again. And a big drop again. To give you an idea of those two drops, since year 2000, the Dow Jones has fallen 50%, almost 50% of its value, twice, right after 911 and the.

com bust, and then in the 2008 range. Now, both of those almost 50% drops took almost a year and a half, two years to complete from peak to trough. And then it took from trough to peak, multiple years to get back to where it was and then take off again. But you have to realize, fortunes were lost. There were a lot of bag holders. Now, in cryptocurrency markets, it’s the exact same thing, but it’s compressed because it’s a new technology, it’s a new idea.

People are piling in. Yet still to this day, very few people around the world own any cryptocurrency at all. Now, with the invention of these exchanges and applications that are on your phone, right, it makes it easier for people. But still, there is still not a ton of people diving in. So cryptocurrency is in its infancy, infant stages, and I do believe that not all cryptocurrencies are going to succeed.

As a matter of fact, I believe that 99% of them, ten years from now, will be gone. Will there be new ones to fill their shoes? Absolutely. But when you’re looking at all the cryptocurrencies out there, 99% of them will fail. Okay, that’s not the conversation for today. Today is what will happen when the stock market turns down. Now, this is why I can tell you with tons of certainty.

Every time I’ve seen a large or not only a prolonged bear market in the stock market, but sudden drops in the stock market, we see those ripple through into the cryptocurrency markets. And this is why cryptocurrency is highly leveraged, just like stocks. And just like stocks, cryptocurrency, the value of your bitcoin is only valued at the last, minuscule, microscopic little portion of bitcoin that was traded on an exchange last.

Now there are tons of millions of trades that go on each day. So these cycles, it’s not like a massive drop where you have. Because bitcoin is a very liquid market, just talking about the big one, right? Whereas you could have stocks that have a liquid market and then some that don’t have liquid markets, like the OTC, the over the counter stocks. And if a stock is selling at a dollar on an ill liquid market, and then somebody just needs to get out and there’s nobody around to buy it unless you’re willing to sell it for $0.

80. If you sell it for eighty cents, the value of that, all the stocks out there are now valued at $0. 80. Right? And it might not go up for a couple more days because there may not be a buyer willing to pay more than 80. As a matter of fact, someone saying, if the last one sold at 80, I’m not going to buy it unless it’s $0.

70. That’s what happens with the illiquid markets. But whether it be liquid or illiquid, they still act the exact same way. The underlying asset is only worth what the last person paid for it. That’s why wealthy people follow what happens in big auctions, art auctions, like Sotheby’s and all these other auctions out there, because they want to see what rare things go for, and that’s how they value theirs.

Okay, so when we’re talking about crypto, when we see a big turn in the stock market, what happens is there becomes either a derisking event where people go, hey, we got to sort of get risk off, and we’ve got to pull back some of our trades, or we sell into it. And when we’re talking about the stock market and cryptocurrency leverage, you have to realize there are a lot of people out there making big bets on margin, which is straight up gambling.

And if it turns negative, it can turn negative very fast. And they have to do what’s called sell to cover. They’ve got to actually sell assets to cover the debts that they now owe the banks or the exchanges. And it happens in both markets, whether it be cryptocurrency or stock markets. The problem is, now that we have two independent markets, and I say independent because these cryptocurrency exchanges, they don’t sell stocks, and the stock market, they don’t sell cryptocurrencies.

Right? There are some that do, a hybrid of both, but a lot of those are wrapped up in what’s called derivatives. That’s a whole nother video. So what happens is, let’s say the stock market starts turning down, and let’s say a big fund manager just found out that the stock bet that he made one of the stocks that he owns and he’s really highly leveraged in, is going down, and he’s taking losses, and he doesn’t have enough cash in his cash account to cover the money that he borrowed to go and buy that stock or the stock that he borrowed.

He’s got to pay it back now. Well, he’s got other assets out there. Used to be the first thing they went to was their insurance in gold, paper gold, and they would sell that off. Now, a lot of these fund managers are investing in crypto, and it doesn’t even have to be a fund manager. It could be you sitting behind your desk looking at your personal portfolio, and you’re taking hits in one market being the stock market, and it’s selling off because of something China did or something Ukraine just said.

And you’re going, man, I can’t take these losses. So what you do is you start selling your winners and you start taking profits. Let’s say some of your winners, especially at the recording of this video, may be bitcoin, because bitcoin is up over $62,000 and you bought it in the. I’m going to sell some of my profit, and that’s going to make me feel good. I’m going to lock in a win.

I wish I could keep it running, but I’m going to lock it in, and I’m going to pay off the debts. On the stock market side, here’s the problem. You’ve just now created a sell. Well, if you’re not the only one doing that, and other people are, then what happens is it creates sort of a frenzy or a panic. And what happens is if there’s more sellers than buyers on the bitcoin market, you start to ask for a little bit less.

How many of you? And I’ve done it before, too, I need the money. And let’s say you’re trying to sell something. Let’s say bitcoin is 62, and all of a sudden it’s at 61 eight, and it’s at 61 761 six. You’re like, I just need to get this in. And I keep trying to hit the bid, and it’s not working. It just keeps dropping. So then I drop mine to 61 two.

That gap down, other people see it and they start to panic, and it gets worse and worse. And that is essentially the way that I can explain without somebody one on one conversation where people are asking me more intelligent questions just to explain it to a camera, how a sell off happens in the crypto market when a stock market crash happens. And it happens usually about, in my experience since 2017, especially watching these up ebbs and flows in the stock market.

And the cryptocurrency market happens within about 24 hours of a downturn in the stock market, because people are now going home. They’re looking at their account, they’re going, oh, my gosh, I got to put money in to cover my losses. So I’m going to go take them out of the cryptocurrency market, and it’s going to get even closer, tied together because of derivatives and these algorithmic trading bots that have been employed by big funds.

And they’re into both of these things as well. And the invention of the bitcoin ETF is going to make it even tighter. So even though there’s a divergence from the cryptocurrency market and the stock market, meaning that the value is going up, right, there’s still a confluence of the ups and downs because it’s all based off of one thing, human emotion. And once you realize that and you realize that human emotion drives everything to the positive or to the negative or keeps things stagnant, you can make a lot of money.

And that’s what you have to trade. You need to trade human emotion. Are people super pumped and excited about the stock market right now, or are they super pumped and excited about the cryptocurrency market? They’re both going to go up if they’re pumped, but which one’s pumped more? That’s going to go up more, and it works on the way to the same thing. To the downside, who’s more bearish of what crypto or stocks? That one’s going to fall more.

So I hope you got something out of this. I thank you. Please ask questions, because I’m just trying to answer people’s questions. I know a lot of you have been asking that. What happens to the crypto market? Because everyone’s looking at the top of the stock market and they’re saying, that’s looking pretty frothy. It’s getting pretty scary. It’s based off almost nothing. So then what happens if that goes down to my crypto? Hope you guys got something out of this.

The economic ninja is out. Bye. .

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