Crypto’s safe-haven status wavers amidst market crash

Perceptions that cryptocurrency performs autonomously from other markets is being questioned as bitcoin crashed by 50 percent on March 12. Market participants say the crash will threaten crypto’s “safe-haven” narrative, but that cryptocurrencies will likely recover long before traditional markets.

“Bitcoin has historically been uncorrelated to traditional markets, but what we’re seeing right now is just a complete meltdown in every industry in the world. And bitcoin is the same thing – there is so much uncertainty; people just need to protect basic goods and necessities so they need to have cash, and that’s why we saw this bitcoin collapse,” says David Waslen, CEO, trade platform Hedgetrade and blockchain software provider Rublix.

“I don’t think it had much to do with uncertainty around bitcoin or digital assets, I think this is more that everyone’s panicking and needs to protect their own and get into cash to stock up.”

Uldis Tēraudkalns, CEO at global crypto exchange and wallet provider Globitex, believes the crypto crash raises questions over bitcoin’s status as a safe-haven asset.

“The major reputation hit for bitcoin in this event was the safe-haven narrative: people in the crypto space were advocating that bitcoin is an uncorrelated asset to traditional markets because it has nothing to do with centralised governments, with the banking system and the underlying economy…

“Now the critics are attacking that – how can it be a safe-haven asset if the S&P drops 10 percent in one day, but bitcoin drops 50 percent in the same day?”

Since its inception more than a decade ago bitcoin has faced several substantial crashes – the most significant perhaps coming at the beginning of 2018, when its price fell by about 65 percent during the course of a month.

But bitcoin’s relative youth and nascent infrastructure lends itself to a volatility that is not afforded to fiat or gold assets; Tēraudkalns says such volatility – even a 50 percent drop – is par for the course in the crypto world. Waslen agrees.

“I don’t think it was the long-term believers that were selling: I think it was people that were panic selling and were really concerned about the entire global markets and so people were shorting the bitcoin market,” says Waslen.

While cryptocurrencies have typically been considered uncorrelated to stock markets, they have often been drawn to other assets such as gold and oil. Yet even this correlation has been challenged recently: a January report from Coin Telegraph found that in the long term, bitcoin did not perform similarly to gold or oil, further questioning what many thought they knew about cryptocurrencies.

Both Waslen and Tēraudkalns believe traditional financial markets will take the greatest hit from coronavirus, with cryptocurrencies recovering quickly. On March 19 – one week after the initial bitcoin drop – the price of bitcoin shot up by more than 20 percent in 24 hours, though some commentators have chalked this jump up to tether, the world’s largest stablecoin, flooding the market. Crypto news source BeInCrypto reported on March 18 that Tether Treasury had minted $60m in an attempt to boost crypto markets. Waslen believes however that bitcoin will remain a “relatively uncorrelative” asset. The inability for traditional fiscal policy to stimulate the economy is evidence of the need for a new financial system, he says.

Tēraudkalns agrees, saying that while crypto companies may take a hit from the crash, the currency itself will persist.

“I see a storyline where Bitcoin actually gains in this situation, because as we know from the Japanese experience for over 30 years, you cannot print money indefinitely and have a positive impact on the economy. I think the major developed country central banks are already at the brink of exhaustion for their stimulus possibilities, so it’s quire realistic that Bitcoin recovers from this a lot faster than the world economy,” he says.

“Bitcoin has been announced dead a couple of hundreds or thousands of times. This is of course the recency bias – the most recent seems to be the worst.”

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