The stock exchange got off to a poor start to start the week, giving back gains from last Friday and restoring worries of a fall correction on Wall Street. The Dow Jones Industrial Average (DJINDICES: ^ DJI) managed to limit its losses to less than 1%, but steeper declines for the S&P 500 (SNPINDEX: ^ GSPC) and Nasdaq Composite (NASDAQINDEX: ^ IXIC) signified less tolerance amongst financiers to stay committed to higher-growth stocks.

Index

Daily Portion Change

Daily Point Modification

Dow

(0.94%)

( 324 )

S&P 500

(1.30%)

( 57 )

Nasdaq

(2.14%)

( 311 )

Data source: Yahoo! Financing.

Advocates of cryptocurrencies have argued that Bitcoin (CRYPTO: BTC) and other popular crypto tokens should be considered a possession class separate and unique from stocks. Over the previous week, much of the crypto universe has actually held up well, even as stock exchange swooned.

If the decreases we’ve seen in significant market criteria become full-blown corrections, then Bitcoin and its crypto peers will face an essential test: Will they provide a safe haven in a stock market storm or will they fall in addition to other danger assets?

Image source: Getty Images. Holding up well up until now At least thus far, cryptocurrencies have actually been able to hold their worth even in the face of stock market volatility. Bitcoin presently fetches more than $49,000, while Ethereum (CRYPTO: ETH) is simply under $3,400. Both prices are up somewhat on the day, and more notably, they have actually increased 7% to 8% in the previous 6 trading sessions– a period in which the Dow and S&P 500 are down between 2% and 4%.

A number of elements have actually supported the crypto industry lately. Investors are significantly hopeful that regulators at the U.S. Securities and Exchange Commission will offer the go-ahead for an exchange-traded fund that enables investors to put their cash straight into Bitcoin and other cryptocurrencies. Different governments all over the world are looking at embracing digital currencies as legal tender, while central banks are increasingly taking a look at coming out with their own digital properties.

Yet the investing psychology around Bitcoin stays vulnerable. Regardless of the tailwinds that have actually assisted cryptocurrencies restore a few of their lost ground after a significant correction previously this year, Bitcoin rates remain well below their highs above $60,000.

Some crypto investors blame that on the growing appeal of other tokens beyond Bitcoin and Ethereum. The rise of decentralized finance has actually improved the worth of other platforms and their related cryptocurrencies, and a few of them have generated far higher returns for financiers than Bitcoin and Ethereum have just recently.

What’s ahead for crypto?

That stated, crypto has its own obstacles to deal with that are independent of the stock market. Regulators in numerous nations all over the world have actually singled out cryptocurrencies for harsh steps, most notably China’s recent outright restriction of crypto trading. Regulative efforts have frequently caused downdrafts in crypto rates, even when stock markets are behaving well.

Yet skeptics keep in mind that at times in the past, Bitcoin has correlated closely with stock exchange moves. That was particularly real in between 2018 and 2020, although connections have fallen substantially in 2021 and are now beginning to reveal indications of potentially being negatively correlated. This is what an investor would want to attain true diversification.

There’s no way to be sure whether Bitcoin and other cryptocurrencies will keep holding up if the stock market falls even more. But many financiers anticipate they will. That makes the current environment a turning point for cryptocurrencies, and those who buy them might see their confidence confirmed or shattered in the weeks and months to come.

This article represents the viewpoint of the writer, who may disagree with the “main” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis– even one of our own– helps all of us believe seriously about investing and make choices that help us become smarter, better, and richer.