Eerie Similarities Between Crypto Market Cap and the Dow Jones
Very few charts are as compelling as the total market capitalization for cryptocurrencies. This simple chart depicts the progress of one of the biggest bull markets of all time. Interestingly enough, the market’s upward trajectory has eerie similarities to another chart: the Dow Jones Industrial Average.
To be fair, this similarity was raised by Hacked member Jure Vizjak. He aptly noted the following:
“Two different indexes, two different periods, same shape of the charts?”
Well, that’s exactly what appears when we compare the crypto market cap to the Dow. Case in point:
Dow Jones Industrial Average
Cryptocurrency Market Cap
Both the Dow and the broader crypto market have had an amazing year. The blue-chip stock index has returned more than 19% since Jan. 1. By comparison, the global cryptocurrency universe has added more than 1,600%. While both markets are on an upward trajectory, the Dow has a 110-year head start, which means its movements aren’t nearly as dramatic.
Although it’s pure speculation at this point, the charting patterns suggest that markets follow a similar trajectory, and that this is true across multiple time frames. The dips and peaks in the Dow have occurred over a much longer time horizon, but investors did what crypto traders seem to be doing now: buying the major dips, corrections and recessions. The crypto market has certainly experienced dips and corrections, with each being followed by a stronger buying spree.
That investors buy the dips is conventional wisdom. Any value investor will tell you that the major indexes have a historical trajectory that is very much upward, making periods after recession an optimal time to buy stocks on the cheap.
Another common theme that intersects the Dow and the crypto-sphere is fear of overvaluation. For the past year, market participants have been concerned that the U.S. equities rally is running too hot to handle, especially when one considers the (lack of) fundamental factors driving the market. Earnings have been positive (because they reflect a weak year-over-year starting point), the economy is improving (if you ignore wages, quality of jobs and export weakness) and investor sentiment is high (because participants are hopeful that the Trump administration can stimulate growth), but do these justify having the top highs and highest lows since 1929? Because that’s what the Dow has experienced this year.
To make a long story short: Wall Street is currently in the middle of its second-longest bull market ever. Many investors, including the author, are failing to justify it from a purely fundamental perspective.
Critics have been even harsher on cryptocurrencies, with many in the mainstream absolutely convinced we are in the midst of a major speculative bubble. At this point, very few analysts disagree that speculation isn’t part of the equation; where they diverge is on the nature and sustainability of the rally.
To give you the contrarian perspective, consider this: prior to 2017, bitcoin was the world’s best performing currency in six of the past seven years. Investors have long been bullish on cryptocurrency in general and bitcoin in particular. Of course, the market’s previous trajectory was nothing like we’ve seen in 2017, but to act like there is no precedent ignores the facts, not to mention the bevy of high-quality altcoins making their way to market.
And before we split hairs over bitcoin vs. cryptocurrencies, the original blockchain currency still controls more than half of the total market cap. It’s very difficult to have a discussion on the crypto market cap without referencing bitcoin both directly and indirectly. After all, BTC has been absolutely critical in driving adoption of altcoins.
For the time being, the overlap between the Dow’s historical chart and the one-year trajectory of cryptocurrency is an interesting observation. Only time will tell whether there is a more profound meaning.
The Dow Jones Industrial Average closed at 23,580.78 on Monday, or roughly 10 points shy of all-time highs.
The total market capitalization for cryptocurrencies is currently $305 billion.
Disclaimer: The author is actively invested in cryptocurrencies and has passive exposure to the Dow.
Featured image courtesy of Shutterstock.