Can Bitcoin Survive Coronavirus?

Can Bitcoin Survive Coronavirus?

Bitcoin and other cryptocurrencies are considered by some to be the cool kids of the investment world, appealing to mavericks, futurists and daring investors. Many forward-thinking investors looked to crypto as a way of diversifying and jumped to add it to their portfolios.

The advantages are numerous and appealing — freedom from political boundaries, big banks and federal rules… to name a few. Many investors relish the privacy and anonymity afforded by crypto.

But can bitcoin survive COVID-19?

Born out of Crisis

Bitcoin was born on the wave of the 2008–09 financial crisis. In that age of bank bailouts, the promise of the blockchain appeared as an innovative answer to those seeking alternatives.

Given current market volatility and uncertainty, we might suspect that cryptocurrencies like Bitcoin would fare well, being of perceived as an off-the-grid option, a radical diversification or a shelter from an uncertain stock market.

“Many Bitcoin advocates believe that the digital asset is inversely correlated to traditional markets and have often suggested that investors will flock to it as a hedge against volatility in traditional markets, but that was not the case today,” writes Horus Hughes of Cointelegraph, referring to a volatile trading day on Feb. 25, 2020.1

Hughes adds that traditionally, Bitcoin gains in times of volatility and geopolitical instability. For example, it performed well amid the China trade deal uncertainties and fears of imminent war with Iran in January of this year.

At that time, Marc P. Bernegger, fintech investor at Crypto Finance, predicted that Bitcoin would benefit from corrections in an overinflated market that had been distorted by central bank policies. Even traditional investors, he reasoned, would begin to see Bitcoin as a viable hedging opportunity.2

Bernegger’s view held water with many financial analysts who warned of a coming correction and overvalued stocks. Quantitative easing, they argued, was engendering false optimism for the average investor. But the unexpected occurred, and the question now is how the coronavirus and current market volatility will affect the outlook for Bitcoin.

At first, the outlook was somewhat hopeful. “Coronavirus and political instability have sent traditional financial markets reeling over the past month. However, while not showing gains anywhere near 2019 levels, crypto is still outperforming many other asset classes,” observes the research team.3

By mid-March, Bitcoin had lost half its value as the stock market achieved new records for point drops. Once known as “digital gold,” Bitcoin appears to have lost its appeal to investors seeking a safe haven amidst growing uncertainty.

“Bitcoin’s recent price action is primarily a result of the coronavirus outbreak affecting global markets and driving investors toward the safety of cash,” said Joe DiPasquale, CEO of crypto investment firm BitBull Capital. “With this sharp decline, Bitcoin’s potential as a safe-haven asset is being questioned…”4

Meanwhile, digital currency Ethereum took a similar precipitous plunge, while XRP lost some 40% of its value.

As the market weathers losses that rival the 1987 crash, it appears that Bitcoin has now reached its potential low, even after a small rebound following a 24-hour low of $3,687.

Bitcoiner Pierre Rochard tried to put a positive spin on things when he opined on Twitter, calling Bitcoin the “ultimate safe-haven asset” because “the network stays up, the exchanges trade 24/7 and the market found a healthy clearing price above — well above — the 2015 low.”5

While Rochard’s optimism may be overblown, it is this very loyalty to the project by its devotees that could pull it through. Jordan Pearson of Vice has a different take: “Bitcoin keeps proving that we shouldn’t underestimate the willingness of rich nerds with an apocalypse fetish to pour money into this thing over the long haul.”5

Nick Marinoff of Bitcoin News asserts that Bitcoin is not dropping due to coronavirus necessarily but instead is experiencing a predicted reaction to an upcoming event referred to as “the big halving” scheduled to take place in May of 2020.

Basically, “The rewards garnered by bitcoin miners will be cut in half, and the currency is set to become much rarer.” The logic follows that “something that’s rare is likely to have a lot more value than something that’s common.”6 Analysts are divided as to the outcome of this action and how it will play out in the markets for the crypto overall.

It is this nervousness and ambivalence about the outcomes, some claim, that are contributing to losses. They point to hopeful changes on the horizon that will elevate the commodity once more: India has lifted its ban on cryptos, and new South Korean legislation will make the cryptocurrencies more accessible to its citizens.

Stalwarts hold firm in the belief that a few bad days of market shock are not an indicator of the performance or potential of cryptos overall and that they are still a premier hedge against fiat currencies and federal banking. As predictions of upcoming recession become more frequent, their belief is that cryptos will have the opportunity still to prove their worth and strength.

So is there a silver lining for Bitcoin and other cryptocurrencies amid coronavirus volatility? Perhaps. Only time will tell.

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With purpose,

Dr. Patrick Gentempo

Patrick Gentempo