The effects of the ravaging coronavirus pandemic have gone much deeper than health issues, with repercussions and the ensuing lockdown crippling diverse sectors in the world.
Financial markets might be the most hard hit after welfare and health.
Key Points
Covid-19 ‘lockdowns’ markets at large
Following the outbreak of Covid-19, many affected countries were swift in taking palliative measures to curtail the spread of the disease by imposing lockdown measures and workplace restrictions.
Months into the lockdown, it has become obvious that physical restrictions are just as likely to trigger negative spirals in other sectors, with economies and financial markets most at risk. A week before the month of March, financial markets suffered significant dips after taking a while to react to the pandemic. The last days of February and early March saw US stocks lose more than 12% of their market value or roughly $4 trillion. The stock markets in Europe and Asia also saw drastic losses that rivaled the 2008 global financial crisis.
The cryptocurrency market was also affected. The second week of March saw the price of BTC drop below $5,000 despite earlier optimistic predictions in light of the bankable Bitcoin halving catalyst. Before the drop, concerns were raised about the lockdown in China, given the country’s control over roughly two-thirds of the Bitcoin mining industry.
Crypto markets still fare well in comparison
BTC and the crypto market, in general, have fared no better during the pandemic, compared to other markets, with BTC recovering by more than 80% since its dip in March. Bitcoin has long been regarded as digital gold, and it certainly hasn’t performed poorly this year since its recovery. In fact, it has outperformed both US and world stocks by posting a loss of around 5% compared to respective drops of 13% and 16% for the S&P 500 and MSCI All-Country World Index.
Economists and analysts suggest that BTC and the cryptocurrency market has benefited the most from the injection of stimulus packages by different governments, as the market poses more potential for quicker returns compared to other investments.
How cryptocurrency compares to gold as a safe haven amid the pandemic
Bitcoin is being lauded for its impressive bounce back since March. But its promise as a safe haven and as a digital gold may be premature. In fact, while BTC’s 5% loss has been considered a positive for the cryptocurrency market amid the pandemic gloom, gold itself has posted impressive numbers and accumulated significant gains since the turn of the year. While Bitcoin is fighting hard to prove its resilience with a meager loss, gold has risen in value, surging at least 11% this year.
“The idea that it is a safe haven in the manner that gold is – I don’t think recent moves bear that out,” said Sui Chung, an analyst at the crypto company CF Benchmarks.
According to Motley Fool contributor Dan Caplinger, the reason why cryptocurrencies plunged along with the stock market is that people and investors now see cryptocurrencies as more of a ”risky asset” compared to before.
“… cryptocurrencies had essentially lost their safe-haven status and were once again perceived as a risky asset. That’s inconsistent with the basic investing thesis many cryptocurrency investors have in justifying their Bitcoin holdings, and if it’s true, it would potentially be a big blow to the idea that Bitcoin offers a safe alternative to fiat currencies and assets that are tied to those currencies.”
When will crypto’s next bull season arrive?
The market is always unpredictable, just like cryptocurrencies. Experts can claim that a bullish trend might come soon, but it is still a big gamble.
For now, though, we’re seeing a massive Bitcoin comeback as it continues to rise in value again. The climb has been steady for weeks now, a most positive development amid the gloom of the lockdown period.
If BTC’s positive trend continues, we can only cross our fingers and hope for the best – including a global victory over the pandemic itself. We will wait. And stay safe.
Demetrios has an extensive background in foreign exchange, financial technology (fintech) and sales, as well as senior management. He has held various managerial and C-level positions in London and Cyprus for both small and large businesses alike. Demetrios also has strong experience with high-net-worth clients and managing institutional risk exposure in highly regulated and emerging markets.
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