Is it worth investing in cryptocurrencies in the midst of the coronavirus pandemic?

April 20, 2020   Bitcoin

Bitcoin, the most popular and stable of all the basically unstable cryptocurrencies in the world, has risen and fallen over the past three months, like all other financial assets on the global markets. After the first reports of an increase in the number of patients with coronavirus in China, the price of Bitcoin has soared up to 10 thousand dollars. The fall was just as rapid: in less than a week, the first cryptocurrency’s price collapsed almost twice. So, can Bitcoin be considered a “protective asset” and will COVID-19 increase the demand for crypto assets in general?

Some experts consider that the opinion that Bitcoin is a “protective asset” is erroneous. It's not like that at all. Bitcoin is a substance that is very difficult to evaluate and calculate. It is used mainly as a good mechanism for uncontrolled transactions.

At one time, great hopes were pinned on bitcoin, it was “hype”, as people say now. It was expected that it would cost 30 thousand dollars, or even 50-100 thousand. But then everyone realized that bitcoin, as financial asset, can neither be counted nor predicted.

As for the current situation, do not forget that it was especially important for the inhabitants of China. The main players in Bitcoin have always been the citizens of this country, they used this asset primarily for the withdrawal of capital and its movement - this is a traditional practice in the conditions of a rather regulated and tight currency market in China.

The first outbreak of coronavirus was recorded in China, and the Chinese began to buy bitcoin, wanting to protect their assets, they transferred them to a “quieter harbor”. Of course, there was a rush of demand for bitcoin.

What happened next? The markets collapsed, which we observed a week ago, when the markets flew rapidly down. A real liquidity crisis has come. At this point, all the problems were revealed: it became clear that there were very few defensive assets in the world, except, perhaps, American government bonds. Even bonds of highly reliable corporations dipped by 5-10%. Gold, silver, precious metals became cheaper, although they were considered the most reliable assets. Palladium fell more than 30%.

In the midst of the COVID-19 pandemic, millions of investors around the world have encountered huge financial problems - the so-called margin calls. And when you need money, you will sell the latter to close the margin call. People sold everything, including bitcoins. That is why cryptocurrency has fallen to almost 3 thousand dollars.

Under these conditions, bitcoin is a small grain of sand in the raging ocean of crisis. It is unclear how much it costs. And at the time of the crisis, you sell your assets for as much as they buy from you.

Now the markets are slowly starting to recover, they began to grow. The colossal help measures and liquidity injections that were made by the United States and all financial market regulators have borne fruit. Markets pushed off the bottom. Bond prices started to rise again. Of course, they have not yet reached their pre-crisis levels, but have already grown by 5-10%.

Take, for example, Boeing: before the crisis it traded at a price of 350-360 dollars per share, at the time of the crisis it fell to 90 dollars, and in recent days it has won its positions very much and is now trading at 170-180 dollars. That is, in a few days it almost doubled.

You can look at other corporations - less falling, such as Apple. Today it is a highly reliable company with over 200 billion dollars in cash. In any crisis, she can buy anything. More recently, Apple was worth about $ 300 per share. At the most difficult moment of the crisis, Apple fell to $ 215. Now Apple - a company that costs a trillion dollars - has pushed off and is already worth about $ 250 - such is the swing today.

What to do with bitcoin now? To date, it has already exceeded the mark of 6 thousand dollars. Now there are a lot of extremely interesting assets that have fallen in price, cheap bonds of reliable, high-quality corporations that give the highest dollar yield - 6-8%.

That's why buying cryptocurrency that can neither be estimated nor predicted is a very risky and unreliable task. If you are a fan of gambling, then it is better to invest in derivatives of gold. This metal is now growing in price at the speed of a rocket. Unlike Bitcoin, real companies are behind these derivatives.

The coronavirus pandemic negatively affects the global economic situation. The first blow fell on the stock markets, which literally collapsed within a few days under the influence of investor sentiment, reduced imports from China, as well as the widespread closure of borders and the introduction of quarantine. Following the stock markets, commodity markets collapsed as well.

The cryptocurrency market has long remained independent of the events associated with the spread of coronavirus. The Chinese government first reported cases of coronavirus infection in December 2019, and an official outbreak report came only in the second half of February 2020. All this time, bitcoin, as the main cryptocurrency, has grown rapidly, having crossed the line of 10 thousand dollars. Together with Bitcoin, the main altcoins grew. For example, Ethereum token reached its maximum and fixed at around $ 200 in February 2020.

For a long time, we observed a correlation of the cryptocurrency market with the S&P 500 index, which reflects general market sentiment. And when the index value fell by 7–9%, the cryptocurrency market collapsed. During the day, bitcoin lost 50% of its value, and the minimum price for a coin was 3800 dollars. Why did the fall happen? In fact, there have been a number of factors.

First of all, this is a speculative component. In December, investors actively bought up bitcoin, expecting a price increase, and when it happened, they began to actively sell. This is also a factor of panic. In March, the market fear index reached its maximum. Investors tried to sell assets that could still be sold. The first to sell were bitcoins and other cryptocurrencies, which were stored in the investor's portfolio. As a result, there has been a global decrease in the capitalization of the cryptocurrency market.

But the peculiarity of cryptocurrencies is that they tend to recover quickly. That is what happening at the moment.

Now there are several main trends on the market. Cryptocurrency exchanges are gradually returning to their usual mode of operation: there are no more breaks in the blockchain operation, transactions are processed in a normal rhythm. Leading crypto exchanges are increasing ETH reserves, preparing to actively sell coins. All these are signs of a recovery in the cryptocurrency market.

As for the forecasts, it’s quite difficult to name specific numbers now, because the market is changing every day. The only thing that can be said unequivocally is that the market will continue to recover, and the value of certain cryptocurrencies will increase. It is likely that Bitcoin will win back its value and reach the January maximum of $ 10,000.

But the drop in the cost of bitcoin to a minimum value of $ 3,500 also looks real. The fact is that the value of bitcoin directly depends on the interest of the community and investors in the coin. The cancellation of a number of major events dedicated to bitcoin negatively affects the value of bitcoin and restrain its growth.

Author: Kate Solano for С

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