Wells Fargo: Bitcoin Volatility Hurting Stock Market

Unsettled trading in bitcoin markets over the festive period is starting to have an impact on mainstream stock markets, according to analysts at Wells Fargo.

The firm’s head of equity strategy, Chris Harvey, raised the issue during interviews earlier this week, citing evidence of sluggish stock performance following the slump in bitcoin prices over the last couple of weeks of the year.

Earlier in December, bitcoin prices surged to all-time highs near $20,000, before falling back to lows of $12,000 toward the end of last week. Since then, the value has recovered some ground, and at the time of writing, bitcoin was trading at $15,264.

Noting that bitcoin prices had outstripped underlying asset value, Harvey highlighted the potential for further repercussions from bitcoin markets.

“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 ... And we’re beginning to see a very small glimpse of that today, with technology down a little bit.”

The rising value of bitcoin has a direct impact on shares in some technology companies, most notably companies like Nvidia which manufacture graphics cards used in mining cryptocurrencies like bitcoin.

As a result of slowing prices on bitcoin markets, technology stocks took a slight hit, a fact Harvey cited as evidence in support of his claims of fallout from poor bitcoin trading.

However, while there may be the possibility of fallout from a slump in bitcoin markets, the comparatively small market cap relative to other markets means any contagion is likely to be very limited.

While just a fraction of the market cap of the S&P 500 in its current form, Harvey did suggest that bitcoin markets could grow, and could become even more volatile over the course of 2018.

The comments from Wells Fargo are the latest in a series of warnings about bitcoin, and the implications of a crash in bitcoin values on more mainstream markets.

Earlier this month, Torsten Slok of Deutsche Bank suggested retail investors could see their confidence blown by a decline in bitcoin, which could ultimately make them more reluctant to invest in similar assets in the future.