Time to Exchange | Is Cryptocurrency a Safe-haven Asset?
The financial markets have been bearish in recent times but this past week was much more intense, with gold, oil, the stock market, and the cryptocurrency market dipping to frightening levels as the negative economic impact of the coronavirus became more evident. On March 11, 2020, the WHO declared coronavirus a pandemic. Are we currently experiencing a global financial crisis? Isn’t Bitcoin supposed to be the ultimate store of value and a safe-haven in times of recession and panic? This week’s edition of “Time to Exchange” covers some interesting insights from the ‘coronavirus-fear-induced’ market crash that happened last week.
Coronavirus has spread over the world and slowed down business activities, caused restrictions in movement, cancellation of conferences, business trips, and tourism and greatly affected the global economy. Some parts of Italy, China, Denmark, and Norway are on lockdown; Ireland closed all schools and mass gatherings; The US declared a national emergency and banned all European flights; France closed schools and universities; Vietnam closed all schools and plan to lockdown Hanoi; Manila in the Philippines is on lockdown, etc.
There are cash infusions from governments all over the world as they look for ways to salvage their economies and help their citizens in these dire times. The US is injecting $168 billion into the financial markets. This amount is higher than the market cap of the entire cryptocurrency market which is at about $151 Billion (on Monday, March 16, 2020). The government of Australia, on the other hand, is injecting a $10billion stimulus to aid individuals and small businesses. Think about this for a moment. Governments are basically just doling out money to people. Money is printed from thin air.
The great dip
Last week started with Bitcoin price losing the $8,000 support level and breaking its macro trendline in a Monday bloodbath. That was already bad enough for the Bitcoin bulls but things got worse quickly as Bitcoin joined other traditional assets (stocks, gold oil) in a fast race to the bottom. Bitcoin’s price crashed 52% on one single day, going as low as $3,750 before retracing to $5,750 many hours later. Last week’s event would be remembered as one of the most terrible Bitcoin crashes in history.
Fear in the markets
For the first time, Bitcoin and other cryptocurrencies are experiencing a recession or global panic of massive proportions. Bitcoin was created in the wake of the financial crisis of 2008 and due to its limited supply and other features, crypto aficionados have boasted that it’s not only an alternative financial instrument but also a safe-haven in the event of a financial crisis.
This is not wishful thinking. Cryptocurrencies have provided an alternative financial system to the people in Venezuela and other countries when they battled with economic recession and hyperinflation. The hopes that in the event of a global recession, people would turn to Bitcoin was high.
However, and the market crash last week dashed the hopes of many. To have witnessed the crypto market crash at the same time as the global financial market was painful. How did Bitcoin become equally yoked with the traditional markets? Bitcoin is supposed to be the outlier. The market crash caused a lot of fear last week and it was also reflected in the fear & greed index. Or maybe it was fear that caused the crash. Like the proverbial chicken or the egg scenario, we can debate which came first. It seemed more like a chain reaction but thankfully the market rebounded quickly.
The Bitcoin Fear and Greed Index measures the emotions of fear and greed in the markets on a daily, weekly, monthly, and yearly basis. Fear indicates that people are selling and the marketing is plunging down, it can make the prices go further down. Greed indicates that people are excited and buying. Last week there was extreme fear in the market.
What should we expect now? Will bitcoin continue in a bearish trend or will it be able to decouple itself from the traditional markets and fulfill its destiny of being a safe-haven asset?
Bitcoin and cryptocurrencies are still perceived as risky asset and they’re usually the first to be sold in times of panic. People would rather hold cash than volatile cryptocurrency during times of panic and recession.
According to Sunny Decree, the reason why people are panicking and selling off Bitcoin, commodities, and stocks is to get cash to buy food in the preparation of an impending recession. This market crash could be the start of a recession. A recession is usually characterized by a deflation followed by hyperinflation. With all the excessive money printing by various governments and banks, hyperinflation cannot be too far. If hyperinflation happens, people would lose faith in fiat money and opt into safe-haven assets. No other asset class can perform the role of a digital store of value and medium of exchange in a recession like a cryptocurrency.
The time for Bitcoin to shine will come. It may be too early to regard Bitcoin as a non-safe-haven asset. If Bitcoin can decouple from the traditional assets and prove itself as a store of value, it would be a massive win and a stamp of validation for the entire cryptocurrency space.
Time to Exchange
Bitcoin and the cryptocurrency markets may be down, however, it’s still a good time to exchange.
Despite the outcome of last week’s market which challenged the idea of Bitcoin(cryptocurrency) being a safe-haven asset, cryptocurrency remains one of the most promising asset classes in the world. Savvy crypto investors who have a good cash position would be increasing their crypto stash, buying more as the prices are down.
The turbulent market conditions also provide some opportunity for traders that love volatility as the volatility of all markets has been skyrocketing. For traders that love high volatility, there is no better place to trade for profit in these market conditions than TPExchange.
TPExchange is a world-class cryptocurrency exchange and the only centralized exchange that is accessible via the TokenPocket app. It is highly secure, easy to use and offers the lowest trading fees. If you are a crypto veteran, enthusiast or newbies, TPExchange is designed specifically to suit your needs.
You can earn $10 when you register on TPExchange. You also earn $1 for each person you invite and a 0.3% commission on their trading fees.
Be sure to practice good hygiene and social distancing to help reduce the spread of the virus. Until next week, enjoy your trading experience on TPExchange and stay safe!
Written by tojukaka