What happened to digital Gold? Bitcoin Crashes

By Eliman Dambell

 

The story has always been that Bitcoin was the digital Gold. Acting as a safe haven in times of turmoil. Wednesday and Thursday saw Bitcoin drop by close to over 50% as the panic of the now global Coronavirus Pandemic infiltrated Cryptocurrency markets, on a day where the ECB tried to ease market tensions. The digital currency which started the week trading at $8300, fell to as low as $3770, in trading on Thursday. So what caused this? Why hasn’t the Cryptocurrency been rising amidst the panic in stock and currency markets? To know why we need to understand the concept of safe havens.

 

What is a Safe Haven in Trading?

A Safe haven in financial trading is often seen as the shelter investors and traders use to protect them from uncertainty. The uncertainty can vary, from being linked to political issues, social tensions, economical influences and even technological innovations or lack thereof. The recent uncertainty in the markets have been more of a health and social factor, with the WHO now calling COVID-10 a global pandemic. Prior to the announcement, markets had already been rife with tensions, with sell offs taking place with most national index markets, like the SP500 in the US. So with those markets going down, was there anything going up?

 

Safe havens are seen as independent of the market, and offer clients the piece of mind of knowing they have stood the test of time. Gold is seen as the flag bearer of safe havens, as this was the means of exchange prior to the FIAT monetary system, and the introduction of central banks. As a result the metal inspires a certain level of confidence in traders than when all else fails, we still have the foundation of Gold, and this commodity can hedge the risks of money markets. So what of digital Gold?

As Bitcoin, and the wider Cryptocurrency landscape is still a relatively new phenomenon, they haven’t yet gained the full backing of investors in believing that they can shield falling investments. Bitcoin appears to be acting more as a nice to have, than a necessity at this stage. With only core believers in the potential for what it can achieve remaining in times off crisis.

So back to the 50% sell off,  along with maybe not yet gaining the safe haven status, another appeal of the cryptocurrency was the volatile nature of its movements.  However now as we see levels of volatility in traditional markets surpassing that of this one, trading volume has remained in money markets, with those trading Bitcoin as a diversity play, selling off their positions to find opportunities elsewhere.

One of the opportunities created, has been the recent response of Central banks world wide creating fiscal policies to help ease markets. The ECB announced they will support the credit line to European banks, who may see borrowing drop, and consumer spending decrease within this period of panic. Markets however weren’t overly impressed at the news, leading to calls for further actions to be taken.

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