By Donna Fuscaldo - Investopedia
Bitcoin's wild ride continued over the holiday weekend, with the value plummeting a double-digit percentage, only to recoup some of that in trading Tuesday. While the cryptocurrency market is unregulated and is not tied to any public companies or indexes, it is only a matter of time before its volatile nature seeps into the stock market, predicted Christopher Harvey, head of equity strategy at Wells Fargo & Company (WFC).
In an interview with CNBC late last week, Harvey said that the slump in bitcoin over the holiday season will spill over into other investments. "There's a significant amount of froth in the crypto markets. We do think that if that froth comes out, it will spill over. It's not going to happen in a vacuum," Harvey said. "And we're beginning to see a very small glimpse of that today, with technology down a little bit." Earlier in December, bitcoin was trading at more than $19,500, only to plummet to a low of slightly higher than $12,000 on Friday. As of Wednesday, bitcoin was valued at $15,765, recouping some of those losses.
Although bitcoin is not tied to any companies, there are a handful of public ones that have benefited from the bitcoin craze, including Nvidia Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD), both of which make computer graphics chips. Their semiconductors were in high demand earlier in the year as people rushed out to buy them to mine for bitcoins. That sent shares higher all year long, although it is not clear if the bitcoin-fueled demand for their semiconductors will continue in the new year.
If a spillover impact from slumping bitcoin happens, it will likely be limited given the small size of the cryptocurrency market. According to Fortune, the total market capitalization is slightly under $600 billion, which is small compared with the S&P 500's market cap of $24 trillion. Still, Harvey said in the CNBC interview that the market size could grow and become even more volatile next year. "It's something to watch out for in 2018," Harvey said.
As Harvey is warning about the impact of cryptocurrency, Charles Schwab's global chief investment strategist Jeffrey Kleintop said the independent nature of bitcoin means that investors should not be concerned with a crash in the price of the tokens. "If prices for bitcoin were to plunge suddenly, because it's so independent from the financial system, it's kind of its own thing," said Kleintop in a recent interview with Business Insider. "It hasn't yet become embedded in the economy and the financial structure."
Read more: Bitcoin Slump Could Start to Affect Stock Markets: Wells Fargo | Investopedia https://www.investopedia.com/news/bitcoin-slump-could-start-affect-stock-markets-wells-fargo/#ixzz538PInfnh
Follow us: Investopedia on Facebook