Yesterday, we reported that the US Federal Reserve has announced an emergency cut of 50 basis points. This led to a recovery in the stock market but not for long. Soon, the stock market dropped and so did bitcoin.
“Bitcoin has been trading a lot like a risk asset lately and ever since the outbreak of Coronavirus made the leap from China into an international issue, Bitcoin has been mirroring the stock indexes, almost exactly,” noted analyst Mati Greenspan in his daily newsletter Quantum Economics.
However, bitcoin isn’t immune to the events occurring outside the crypto industry as reported by Crypto Metrics. Over the past week, we saw crypto assets getting sold off in line with risk assets amidst the economic impact of the spreading coronavirus.
However, it is worth noting that when the need for liquidity is high, safe haven assets like gold and bitcoin also get sold because liabilities that include margin calls and debt service obligations can only be paid in fiat currency.
Bitcoin prices moved on the back of central banks adding stimulus only to record sharp declines. However, the forced liquidations on BitMEX and other futures exchanges “remain modest” unlike last year.
S&P 500 term meanwhile, has been actually mirroring “coronavirus” on Google Trends. Analyst Timothy Peterson notes that the trend for “SPX” S&P 500 is “nearly completely tied to coronavirus fear,” with a correlation of -0.9.
Bitcoin, however, is the least correlated asset to coronavirus, it simply doesn’t care. The traditional safe haven asset gold meanwhile, remains the best hedge with a positive 0.6 correlation.
However, Qiao Wang, Head of Product at Messari Crypto says bitcoin following S&P 500 and acting as a risk-on market means even crypto holders need to hedge against the global recession.
“Every short-term time frame I look at, be it 1 minute, hourly, or daily, Bitcoin looks depressingly correlated with S&P.” And the fact that crypto King has been trading like an “absolute Shitcoin” over the last couple of weeks, Wang says large amounts of crypto holders need “hedging against a mild global recession.”
However, he says it doesn’t necessarily mean that bitcoin will get crushed by a mild recession, but we could see it getting affected as it has been since last week.
But the biggest risk is “breaking the narratives (digital gold, halving rally, etc.) that took 10 years to form might set the entire industry back a couple of years,” said Wang before adding, that he remains “incredibly bullish over a 5+ year time horizon.”
Meanwhile, Bridgewater Associates founder Ray Dalio warns investors to “imagine the worst-case scenario and protect yourself against it.”
In this week’s write-up, he said the coronavirus (covid-9) will “most likely lead to an uncontained global health crisis that could have high human and economic costs.” And though reactions to the virus are expected to only cause a “big short-term economic decline” they will be followed by a rebound that won’t leave any “big sustained economic impact.”
The revenues of the business will rebound but those from the most severely affected economies will have a “significant” impact.
In turn, central banks will cut interest rates and increase liquidity but they “won’t lead to any material pickup in buying and activity from people,” said Dalio as they have already happened and marked has already priced them in.
This we saw yesterday and today lawmakers have reached a settlement of worth at least $7 billion to a US response to the coronavirus.
Currently, the Dow is up 2.24%, S&P 1.96%, and Nasdaq $1.82%. Bitcoin is also in the green by 0.37% trading at $8,750 while gold has taken a hit of 0.21%. 10-year Treasury has a yield of 0.976%, the lowest ever.