Is your favorite memecoin not pumping? Is your portfolio down 90%? Fortunately, there are ways to fix this!

When investing in crypto, it’s easy to get caught up in hype and memes of $DOGE going to the moon. However, focusing only on crypto can limit your understanding of the bigger picture. The financial markets are interconnected, and tracking other asset classes—like stocks, bonds, and commodities—can give you an edge in making better investment decisions.

Let’s explore how different asset classes interact with crypto and why monitoring them can help you improve your trading! 

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The Stock Market and Crypto Move Together

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Many people see Bitcoin (BTC) and crypto as a separate market from traditional finance. They say that BTC is the “digital gold” and a hedge against inflation. While that may be true in terms of technology, price movements in crypto are often influenced by the stock market—especially the U.S. stock market.

Historically, Bitcoin has been positively correlated with major stock indices like the S&P 500 and Nasdaq 100. This means that when stocks go up, Bitcoin tends to go up, and when stocks drop, Bitcoin often follows. The reason? Institutional investors now see Bitcoin as a “risk asset” similar to tech stocks.

• Example: In 2020-2021, both Bitcoin and U.S. stocks surged due to low interest rates and massive money printing. But in 2022, when stocks crashed due to rate hikes, Bitcoin also fell sharply.

By tracking the stock market, crypto traders can get clues on potential price trends. If stocks are rallying due to a strong economy or favorable policies, it may signal a bullish environment for Bitcoin. But if stocks enter a bear market, crypto could face heavy selling pressure too!

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Treasury Yields and Bitcoin – An Inverse Relationship

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Treasury yields, especially the U.S. 10-year Treasury yield, play an important role in shaping crypto prices. A Treasury yield is the return investors get for holding U.S. government bonds.

• When Treasury yields rise, Bitcoin and other risk assets usually drop.
• When Treasury yields fall, Bitcoin tends to perform better.

Why does this happen? When yields go up, traditional investors prefer to put their money in bonds rather than riskier assets like Bitcoin or stocks. Higher yields also mean that borrowing money becomes more expensive, which can slow down economic growth and reduce speculative investments in crypto.

• Example: In 2022, the Federal Reserve raised interest rates aggressively, causing Treasury yields to rise. This led to a sharp decline in Bitcoin and other risk assets. On the other hand, when yields dropped in early 2023, Bitcoin started recovering.

By keeping an eye on Treasury yields, crypto traders can anticipate shifts in market sentiment. If yields spike, it could mean more downside for BTC. If they decline, investors may start taking on more risk, leading to a crypto rally.

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Gold and Commodities – A Hedge Against Risk

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While crypto is often seen as “digital gold,” the real gold market still plays an important role in financial markets. Unlike Bitcoin, gold has been a safe-haven asset for centuries, meaning that investors turn to it during times of uncertainty. For example, right now speculative markets like stocks and crypto are falling due to fear from Trump’s tariffs but Gold is making highs. 

Gold tends to perform well when:

• Inflation is high
• The U.S. dollar weakens
• The economy faces uncertainty or recession

In contrast, Bitcoin is still considered a risk asset, meaning it often struggles in economic downturns. This is why tracking gold prices can be useful. If gold is rallying while Bitcoin is falling, it may indicate that investors are moving into safer assets.

Other commodities like oil and silver can also provide insights into inflation and economic trends. For example, rising oil prices often lead to higher inflation, which can impact interest rates and, in turn, crypto prices.

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The Power of Diversification

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You’ll never get it 100% right. Even the best traders and investors never do. That’s why it’s important to never put all your eggs in one basket and diversify! Understand the relationships between asset classes and split your portfolio/trade accordingly 

• If stocks and crypto crash, holding gold or bonds can help cushion the losses.
• If Treasury yields rise, reducing exposure to risk assets like BTC can prevent heavy losses.
• If stocks and crypto are bullish, staying invested in both markets can maximize gains.

Many professional investors balance their portfolios with a mix of stocks, bonds, commodities, and crypto. This approach helps them protect their capital during downturns while still capturing growth in bullish markets. Never go all in or be prepared to lose it all!

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Final Thoughts

Crypto does not exist in isolation—it moves alongside traditional financial markets. Even if you only hold or trade cryptocurrencies, it still helps to watch other correlated assets to see where the markets can go. If you’re having trouble with one asset, try switching to another and see where it takes you. Happy trading! 

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