Panic from pandemic coronavirus, which has already more than a month continues on world markets, helped to stop a large-scale intervention of the U.S. Federal reserve and lower interest rates in the United States. On the factor of the disease overlaps with falling oil prices and the debt load of the financial sector. Together with other assets in this «perfect storm» hit and bitcoin lost almost half the cost of just two days on March 12-13. For some, this was proof of the inability of the first cryptocurrency to perform the role of «digital gold», others insist that the continuation of the crisis BTC will become a protective asset. What arguments lead hand — versed DeCenter.
The global stock market has been declining for a month. We will remind, initially the main negative factor was the fear of the spread of coronavirus epidemic and, as a consequence, the slowdown in economic activity. However, on March 9 markets experienced Black Monday, when the leading indexes closed the fall: the Dow Jones and S&P 500 lost about 8%, Nasdaq is 7%, and FTSE — 8%. Similarly, the led itself, and Asian markets.
The culprit was a sharp drop in world oil prices (from 25% to 34%) as a result of Russia’s withdrawal from the transaction «OPEC+». Russia has refused once again to reduce oil output proposed by Saudi Arabia, which was due to a decrease in oil demand in China because of the epidemic. March 9, after the weekend, the stock market reacted to the collapse.
Held hostage by record volatility in the global steel markets and cryptocurrencies.
Cryptocurrency for a long time kept aloof from the panic in the stock markets, and even lower prices of bitcoin from $9000 — $7800 March 9 could not be called dramatic. But everything changed after a couple of days after «Black Monday».
March 11, the world health organization (who) recognized coronavirus pandemic (global spread of the disease). Following this, from 12 to 13 March, the cryptocurrency market have fallen by 60%, and the price of bitcoin dipped to the key support area at $3900–$4000.
For a long time, bitcoin was seen as «digital gold» — instrument hedging the risk of having a negative correlation with the stock market. By this logic, if the stock market falls, capital needs to flow into bitcoin, increasing its price.
However, the events of March 12-13, showed that regardless of the reason, at the global level, bitcoin is considered as high risk an asset that disappeared during the crisis, and not Vice versa. Accordingly, the first crypto-asset is closely correlated with the state of the stock market.
Research Director CoinDesk Noelle Acheson believesthat because of this behavior bitcoin lost the title of «digital gold» and, perhaps, forever. Moreover, it was only for his followers. However, in her opinion, the «black week» showed that «safe havens» in the financial world is not in principle:
«Gold and US government bonds, the assets to which the market traditionally addressed in times of confusion, also fell, largely because of shrinking liquidity. Investors struggled trying to get to the cache, but even such an asset having a status of «safe Harbor» may be at risk on the background of how the global economy will slide into recession, and geopolitical challenges monetary policy and the belief in the sovereign debt».
«In a world troubled by income» asset type of bitcoin, the cost of which does not depend on current cash flows can take a firm place among the so-called alternative assets. Investors perceive these assets as an opportunity to compensate for the upcoming «shift of market fundamentals,» and bitcoin does not depend on macroeconomic indicators will be most welcome.
As noted General Director of Xapo cryptomeria Wences Casares in comments to Fortune, bitcoin is a very young asset. Once it becomes «digital gold», but now he’s «the kid», and it is unknown how long the transition to adulthood. From this point of view and agree to the managing Director of Scalar Capital Linda si: in the long term bitcoin will become a «safe haven», but now he’s acting like something paradoxical and as a protective and as a speculative asset.
But not everyone agrees that the first cryptocurrency has lost the role of «digital gold». The founder of Avanti Financial Group Kathleen long in the podcast from Anthony Pompliano expressed the opinion that it is impossible to judge about the ability of bitcoin to be a protective asset in the interval 1-2 weeks. She also noted that protecting the assets is usually sold out in the first place, because it is not tied to the derivatives and, therefore, can be cashed:
«Margin trading has really affected [such assets] <…> If you own physical gold or private keys to their crypto-assets, they are yours. You have full right of ownership of these assets.»
Redundancy in instruments with leverage in the beginning of 2019 celebrated analysts of the exchange BitMEX. According to their study, the volume of margin trading by the companies on asset management in the U.S. market bonds and derivatives based on securities with fixed yield reached critical values. In such conditions a sharp drop in the markets will lead to a massive liquidation of positions and the lack of liquidity.
BitMEX recently released a new study, which stated that «new economic reality». According to the findings of researchers, Central banks have exhausted the ability to influence the economy through interest rates (March 15, the fed lowered its key interest rate to 0-0.25%). However, the social obligations of the state grow, and with them, the national debt, which will be covered by issuing currency financial institutions. In the US, it will lead to growing inflation in the 70’s. for Example, from 1979 to 1980, the inflation of the dollar reached 15%.
Statistics of inflation of the U.S. dollar. Source.
This will be a «shock» for Western economies, who do not remember high inflation of the last 30 years. In the new conditions the traditional defensive assets, like gold, will be of special importance. «This could be the greatest opportunity that appears to have bitcoin in his entire short life,» the authors conclude.
High correlation between bitcoin and traditional Finance in recent weeks, remains a fact. Although there are nuances.
First, bitcoin is not always so closely associated with the stock market as it is noted in the study Longhash. This trend has been observed for several years. In 2014, the correlation was inverse, and 2018 were consistently close to zero:
The correlation value of BTC prices and the DJIA. The greater the deviation from 0, the higher the correlation, positive or negative. A value of «0» means no correlation. Source.
Second, as noted by Cointelegraph, since the yield of the first cryptocurrency and the ether was moving in positive zone, while gold and the stock market had a lower profitability. Compared to the price at the beginning of the year and even after the collapse of March 13 bitcoin lost less than equities (the S&P 500 index) or WTI:
The change in the value of bitcoin, gold, dollar, WTI crude oil and the value of the S&P 500 index. Source.
Since bitcoin is now «tied» to financial markets, its use for cryptocurrencies has brought measures the fed: rate cut on 15 March and the large-scale purchase of government bonds under the policy of «quantitative easing» has led to stopping panic and closure of stock markets in the «green zone». At the same time, by 20 March the price of bitcoin has recovered to $6500.
COO Xena Exchange Konstantin Plavnik believes that bitcoin cannot be considered «digital gold»: «How can be called a defensive asset, the price of which for the year is cut in half?». Dramatic fall of the stock market, according to him, due to the fall of the stock market, which occurred due to the «black Swan». Market participants began to actively get rid of risky assets, including proved and cryptocurrencies.
The reason for the partial recovery of the stock market Fin called the overall positive background in the global economy: «investors had a shock. Now he’s gone, they have again started to invest.» Xena the representative also added that the fed’s actions to lower the rate enough to stop the crisis trend. Inflation may slightly increase for some time, certainly not up to 70 years, as predicted BitMEX.
The end of last week gives hope to the recovery of the stock market due to the correlation with the stock market. However, BTC continues to swing on the waves high volatility, and if a high correlation is retained, the new collapses in the global economy will be stronger to respond to the cryptocurrency.
Regardless of the price of digital assets may become business associated with bloccano and cryptocurrency: Morgan Stanley and Goldman Sachs has predicted recession and has adjusted the indicators of global growth to 0.9-1.25% by 2020. It is not known how it will behave with the economy under continuation of the pandemic in the early stages and when the disease will end.
Some observers point to the fact that bitcoin could not protect against coronavirus panic, but should implement its role as a protective tool after the fed turned on the printing press, and the government bond yield is approaching negative values.