Christopher Harvey, Head of Equity & Quant Strategy at Wells Fargo Securities, thinks the movements of the cryptocurrency market are affecting the stock market as well. This means that, if the bitcoin bubble bursts, the stock market will suffer consequences.
During an interview, Harvey said there is a correlation between the two markets. The strategist of the third largest bank in the United States according to the market capitalization says this parallelism between the two markets was clearly demonstrated on February 5th, when the financial market was hit by a volatility wave. The Dow Jones Industrial Average fell by 1.175 points and the price of bitcoin fell below six thousand dollars.
The falling tendency of the financial market was qualified as a correction, it is not foreseen this tendency will last on a long-term basis. However, Harvey fears the uncertainty could push investors to add fuel to the fire and decide to sell bitcoins.
The correlation mentioned by the Wells Fargo strategist was the main cause for the warning issued by the bank to its clients. The bank warned the clients that the best way to predict the future movements of the cryptocurrency market is to evaluate the risk. The risk is directly linked to the volatility of the digital assets. Nevertheless, this is not written in stone. Harvey said: “If we are right, what we should see is the product with the highest risk. If we are right and the risk starts to bid again, we would not be surprised to see a bid on some of the cryptocurrency markets.”
It is important to say the volatility from the beginning of this year is not limited only to the cryptocurrencies. Just like Harvey and some other experts pointed out, the risk level on the stock market in the first weeks of this year aroused major interest of some investors who saw the potential for big earnings by investing in cryptocurrencies.
Wells Fargo forbade its advisors to process investments for the first exchange-traded fund (ETF) based on bitcoin at the beginning of this year. The owner of the fund is a company called Grayscale Investments and it is regulated by the U.S. Securities and Exchange Commission (SEC). This eliminated all types of negotiations with the cryptocurrency markets.
Christopher Harvey did not mention the move to forbid the investments in the ETFs. Nevertheless, he suggests to his clients to continue performing transactions with cryptocurrencies.