While the global economic engine continues to suffer the effects of the slowdown induced by the new coronavirus, it is still unclear how much devastation the pandemic is causing. For example, due to restrictions imposed by governments around the world, such as border closures, trade restrictions and reductions in imports and exports, economic movement has almost ceased, causing many businesses, both large and small, to face losses or close down completely.
In addition, traditional financial offerings such as stocks, bonds and equities have also been battered since mid-February, with many leading economists warning that the global economy is heading back into a major recession – the effects of which will most likely be deeper than any other downturn seen in the past.
To put things in perspective, the FTSE 100, Dow Jones Industrial Average and Nikkei 225 have all experienced unprecedented declines in value over the past four months. In fact, the Dow and the FTSE posted their largest quarterly declines in more than three decades earlier this year.
As a result of these developments, central banks around the world have cut interest rates to boost consumer confidence, mainly by making it easier to borrow. However, with a second wave of coronavirus expected to sweep the world by the end of the year, fears of a further increase in volatility are still on the horizon.
Bitcoin’s current stability redefines market perception
Despite the disorder that seems to have engulfed the global financial sector, it should be noted that since May, the value of Bitcoin (BTC) has not exceeded the $9,000 to $10,000 range, with a few short-term exceptions.
As a result of this regained stability, albeit perhaps temporary, many casual investors began to give more credence to the idea that Bitcoin could eventually develop into the stable asset class that many had originally envisioned.
Moreover, this theory has gained even more ground since the “Black Thursday” crash in March, which saw Bitcoin and gold – another well-regarded traditional store of value – show a stronger correlation after the event. Jeffery Liu Xun, CEO of XanPool – a peer-to-peer fiat gateway – shared his thoughts on the issue with Cointelegraph :
“No one will dispute the strengthening of the perception of Bitcoin within the traditional financial class. This is partly due to the continued performance and resilience of the Bitcoin market, but also largely due to the fact that traditional hedge fund managers such as Paul Jones are openly promoting Bitcoin, positioning Bitcoin as a hedge against inflationary global financial policy”
In addition, according to cryptographic data analysis firm Coin Metrics, the above correlation has never been observed historically and seems to suggest that more and more people are beginning to view Bitcoin as a digital safe haven. However, when it comes to comparing the price action of the two assets, BTC appears to have outperformed gold.
Having said that, prior to Bitcoin’s current stable position, the currency has very recently faced periods of unprecedented volatility. Over the past two years, declines of $2,000 to $4,000 have been observed on a weekly basis, so much so that in 2018 the value of the BTC has gone from a relatively high level of around $14,300 to just under $4,000. In this regard, during the same period, the value of gold has shown an incredibly low level of volatility, remaining in a price range of about $1,200 to $1,360 for the year as a whole.
Finally, although many are enthusiastic about the market’s renewed confidence in Bitcoin, it is worth recalling that after the much-anticipated halving of the flagship crypto in May, the currency’s value has remained almost stable, and its volatility levels are now reaching record lows.
Why hasn’t the price of Bitcoin skyrocketed?
When looking at the current lack of action on BTC prices, it is useful to note that if one were to look at the movements in the value of the currency at this point in time after its halving cycle in 2016, it would become quite clear that the asset behaves in much the same way as it does today. In fact, it was a year and a half after its halving in 2016, around mid-December 2017, that BTC reached its record value of about $20,000.
Moreover, the volatility and uncertainty surrounding traditional financial markets have not translated into a direct increase in demand for Bitcoin, as the panic caused by the coronavirus has apparently highlighted the need for alternative monetary systems rather than pushing Bitcoin to the centre of the global financial scene. For example, when the coronavirus began to take over the world at the beginning of the year, BTC went from nearly $8,000 to about $3,600 on some exchanges, all in less than three days between March 11 and 13, calling into question its status as a safe haven.
Similarly, when stock markets around the world experienced sharp swings throughout May, BTC also followed suit, reflecting declines in the value of many traditional assets and commodities, adding to its perceived stability for investors around the world. In addition, the currency’s low ease of use appears to have limited its potential for widespread adoption at the time it was recorded. On this subject, Nischal Shetty, CEO of WazirX – a crypto trading platform based in India – commented :
“Let’s also remember that this is the first time we have experienced a global economic collapse of this magnitude. Given the global economic situation, it’s great to see bitcoin prices being stable and strong.”
Similarly, Ethan Taub, CEO of Loanry – a platform that connects people with lenders to raise funds for their projects – believes that the bitcoin market has been partially disrupted due to a lack of buying and selling. Although it is largely dormant, he believes that after this period of stagnation, there could be a decline in value, following which BTC will experience a price spike.
Another potential cause of the current stagnation could be due to the fact that many people have recently lost their jobs and have therefore refrained from risky business activities. In this regard, the International Labour Organization has predicted that in the second quarter of 2020 alone, more than 400 million people worldwide have lost their jobs. To put things into perspective, the above-mentioned job loss figures are already ten times higher than those observed after the 2008 recession.
BTC’s future in the green?
Although Bitcoin has struggled to break the $10,000 mark for a few months, the market as a whole seems quite confident in the long-term potential of the leading crypto asset. For example, a new Cryptography Outlook report released by Bloomberg in early July shows that the report’s analysts are optimistic about BTC and believe that it could very well approach the $12,000 mark in the coming weeks or months.
To back up their claims, analysts said that due to the current economic climate, more people are beginning to understand the usefulness of cryptography and how it can act to alleviate inflationary problems. In addition, they also pointed out the low volatility of the BTC compared to major stock market indices, such as the Nasdaq, which clearly indicates that the currency is ready for great things in the near future. The report reads as follows: “The unprecedented easing of the world’s central banks and the rising value of gold are long-lasting trends that favor an increase in the price of Bitcoin.”