Crypto 'safe haven' asset in doubt following coronavirus shock
The dreaded coronavirus spreads unchecked. 47 countries have reported confirmed cases, travel plans are cancelled, shipments delayed and businesses pull out of scheduled events and conferences. And once more, investors are panicking. The resulting stock market sell-off was accompanied by a predictable flight to ‘‘safe haven’’ assets such gold and U.S. Treasury bonds, but one more modern asset was notably not seen as a secure refuge in these troubled times–namely, bitcoin.
The original cryptocurrency has grown beyond its initial conception as a kind of digital cash and is instead serves more as a store of value. In theory, it should be able to serve the same kind of “safe haven” role as gold.
But in the face of an uncertain and volatile market, bitcoin is not behaving as such. Investors still prefer traditional assets to hedge against chaos, and bitcoin suffered for it. Stocks saw their fastest correction in history, crypto has fallen right along with them.
Bitcoin not immune to coronavirus concern
Just two weeks ago bitcoin was riding high at $10,450, the most valuable point of 2020 so far. But after a more than 6% drop since Monday morning, the top cryptocurrency has sunk below the $9,000 line. That’s a plummet from up 50% for the year to 20%.
The top three altcoins suffered a similar fate. At the time of writing, ether is down 11% since Monday, ripple is down 12.5%, and bitcoin cash is down 16%.
Gold, on the other hand, continues to glitter, attracting investors to its sheen of safety. The precious metal and classic hedging asset has held flat over the stock market’s bumpy week and comes out up 5% in the past month. Crypto has a long way to go if it is supposed to supplant gold as a safety net.
Crypto still too new to weather the storm
The behaviour of bitcoin over the last week doesn’t mean that it has no future as a safe haven asset. But most investors who look for safety still go for assets that have predictable results over decades, and bitcoin is still just over 10 years old. Given time for cryptocurrency as an instrument to mature, it could become a hedge against political or economic turmoil in the next ten or fifteen years.
The possibility of a global pandemic could just be too much for investors to trust the nascent safe haven of bitcoin. Perhaps bitcoin needs more time to be integrated into mainstream market strategy, especially when investors become risk-averse.
Mati Greenspan of Quantum Economics offered one possible theory to explain the situation. According to Greenspan, the main concern in the market right now is loss of earnings as big companies see their supply lines disrupted by the virus, but bitcoin was never “a safe haven against declining profits.” Rather, Greenspan wrote, bitcoin is a safe haven “against inflation, geopolitical strife, and central banks.”
StormGain – your best bet on bitcoin in the long run
While the past week has not been kind to bitcoin, crypto holders and traders should do well to take a long term view and not give in to temporary jitters. Bitcoin is up 130% in the past 12 months, and up 3,000% in the past five years.
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