If you have been involved in the cryptocurrency world for long enough you will have certainly heard Bitcoin be described as “digital gold”. Gold, in times of market downturns has historically acted as a safe haven for investors to protect their wealth. Bitcoin, some suggest, is its digital “safe haven” counterpart. A way for investors to protect their wealth from the traditional markets when they turn red as they have done recently due to concerns over the Coronavirus.
Yet as the markets continue to plummet, continuing their slide from Friday, Bitcoin has also been on the receiving end of this turmoil. Bitcoin is entering territory that many proponents have been waiting for. The theory supposed that as a recession, or worse, a depression hits the traditional market that Bitcoin would be the new safe haven asset that people would flood too.
Since it’s inception after the 2008 Financial Crisis, Bitcoin has never had to deal with a truly tumultuous stock market that we see now. However, instead of retaining it’s value of around $9,000 at the weekend, Bitcoin saw one of the biggest daily losses in 6 months. While the stock market and other commodities took heavy losses, including oil, gold has a small and relatively painless dip over the weekend.
Further fears have arisen in the oil markets as Saudi Arabia and Russia look to be heading towards a price war. Oil dropped 27%, it’s largest drop since the start of the first Gulf War in 1991. With the US stock market opening again today after the weekend break further losses are expected.
Many predict that further rate cuts from central banks are to be expected. However, with interest rates still at very low levels there is little leeway for them to cut heavily, unlike 2008. While we are entering uncharted territory for Bitcoin the same can be said for traditional markets. At the same time, the Coronavirus shows no sign of slowing down. With the US still not catching up with testing, due to the bungling leadership of Trump, we can expect vast amounts of new cases to arise in the coming weeks, shocking the stock markets further.
Bitcoin then faces one of its first acid tests. As panic continues to consume traditional markets over the spread of the Coronavirus, the price of Bitcoin over the next weeks and months will be fascinating to watch. Will it stand up to the idea that it can be a “digital safe haven” or will it prove that the first cryptocurrency is not immune to wider market forces.