The owners of crypto exchange BitMEX are arrested and President Trump gets the coronavirus. The price of bitcoin suddenly plummets after the first event, and continues dropping with news of the second.
But why? How exactly do world events affect the price of bitcoin?
It was expected that the BitMEX news would impact the price of bitcoin. The allegations against the large online bitcoin exchange are that they didn’t follow proper Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols, which violates the Bank Secrecy Act (BSA) requirements for financial services companies.
As a result, their CEO and a co-owner were arrested yesterday under money-laundering charges, while two more co-owners remained at large.
This casts a shadow on the crypto world, putting top of mind that “crypto = crime.” Of course, we know that’s not true. Some criminals use cryptocurrency, just like some use cash and others use bank wires. There’s not a direct correlation.
In fact, companies like Coin Cloud, the industry leader in compliance, takes legalities very seriously. Along with other top Bitcoin ATM companies, Coin Cloud follows all BSA mandates, is registered as a licensed Money Services Business (MSB) and makes sure proper AML and KYC policies are always in place.
And yet, the news of one set of accused bad actors caused the price of bitcoin to start sliding.
A few hours later, President Trump tweeted that he and First Lady Melania Trump had tested positive for COVID-19. This is possibly the most serious health issue facing a sitting president since the assassination attempt on Ronald Reagan almost 40 years ago.
This news caused the price of bitcoin to fall further, which seems more surprising because it has nothing to do with digital currency. But it wasn’t just bitcoin — the stock market took a dive too.
It’s important to understand that almost anything related to government economics will influence the financial markets — and it seems that crypto isn’t immune to that, even though it’s decentralized and not controlled by the government. It might be LESS affected than mainstream financial … but not completely unaffected.
The stock market is affected by world events that include war, terrorism and natural disasters, and such events can even cause chain reactions. It’s because of fear, uncertainty and doubt (FUD), which is also a concept that often drives investing decisions.
When terrorists attacked the World Trade Center on Sept. 11, 2001, for example, the stock markets were directly impacted because investors subsequently chose to make fewer trades and focus on less-risky stocks and bonds.
Sometimes an event can have a less direct impact on the market, like the announcement of a military venture causing the stocks of weapons manufacturers to rise, and in turn the stocks of the parts manufacturers, and then the natural resources used to make those weapons. You might have to dig a little to see the relationship.
The general rule of thumb is that bad news causes people to sell assets, while good news prompts them to buy. When people sell, prices go down, and when people buy, they go up. This phenomenon is directly based on the laws of supply and demand.
Often these effects will be short-term only, and sometimes they will have a longer-term impact. Unfortunately, only time can tell. But as we are seeing now, alternative finances can follow the same type of pattern.
So, while it’s too early to predict just what long-term affects these news events will have on cryptocurrency, we can say that bitcoin is certainly not immune, any more than the stock market is. Always keep an eye on your portfolio and make decisions accordingly.
Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.
Founded in 2014 in Las Vegas, Nevada, Coin Cloud is the leading digital currency machine (DCM) operator. With over 4,500 locations nationwide, in 48 states and Brazil, Coin Cloud operates the world’s largest and fastest-growing network of 100% two-way DCMs, a more advanced version of the Bitcoin ATM. Every Coin Cloud DCM empowers you to quickly and easily buy and sell over 40 cryptocurrency options with cash.
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