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Crypto in the Time of COVID19

The coronavirus outbreak has unsettled the whole world in recent weeks. While it began in China, it has spread rapidly to all corners of the globe and is having a major impact – not just on global health – but on the economy as well.

How bad is the situation? Ray Dalio, co-founder of Bridgewater, one of the world’s biggest investment firms, called the Coronavirus “one of those once-in-a-century catastrophic events.” As more people become infected – the numbers are rising dramatically, with more than 1000 cases in the United States alone – nations are bracing for a disruption of great proportions and a long, steep economic downturn as well.

Bitcoin, gold, and the coronavirus

Customary wisdom states that what is bad for the market is good for gold, considered a safe haven when times are tough. Recently, Bitcoin, often called digital gold, has also been considered a safer place to store cash when the market has wobbled, as it shares several characteristics with gold:

  • Bitcoin and gold are rare assets with a limited supply.
  • Both are recognized and traded globally, with the advantage of digital trading for bitcoin.
  • Both are relatively free from manipulations by of countries or financial institutions.

It was expected that Bitcoin’s price would rise sharply with news of the corona crisis and amid falling stock prices, but like gold, it didn’t. Along with the toll to other asset classes, gold and bitcoin have declined as well.

Does that mean the digital gold theory has proved wrong? Not necessarily.

One important aspect regarding the crypto market and the corona virus is that the greatest damage was initially seen in southeast Asia, as the virus was first discovered in China’s Hubei province. Southeast Asia is one of the largest hubs for crypto, from mining to exchanges, and this could explain the decline in activity in the crypto market.

It’s possible that on a broader level, even if bitcoin doesn’t behave exactly as digital gold, it may well be behaving like digital gold in a partial manner. The fact is that even the physical shiny-gold bullion has dropped during the recent turmoil in the markets. However, gold has fallen less than other assets. The drop in physical gold can be explained as a rush for cash by investors who needed to cover losses in other assets. Bitcoin’s drop was sharper than that of gold, yet softer than the major stock indexes. It is possible that bitcoin may be “less gold” than gold, yet “more gold” than many other assets.

No Sweeping Conclusions As Yet

The young crypto market is still developing. We don’t have enough information to make sweeping conclusions. Only this week, the Supreme Court of India overturned the ban on crypto trading. This decision, which is a result of years of juridical efforts by the local crypto companies and community, could open up the second-largest country in the world for crypto usage. That is only one example of the early stages of the crypto market, while the effect of the coronavirus outbreak is still in progress.

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