Today, the price of bitcoin started the day on a positive note as it went above $8,000 just like the stock market. However, the digital asset is following the US stocks quite strongly as soon after we took a hit.
Currently, BTC/USD is trading at $7,920, up 1.70%. US stocks also swung between gains and losses in yet another wild session on Wall Street as the market speculated the timing and size of stimulus promised by US President Donald Trump.
Trump vowed to take “major” steps to help the economy including payroll tax cuts while he is again calling for more cuts.
“Doubt and uncertainty about the magnitude, timing, impact of fiscal measures — both in the U.S. and abroad — are causing investors to worry about jumping in too soon,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Market experiencing a “very strong risk-off environment”
It’s been since mid-February that the world’s leading cryptocurrency has been in line with the US stocks.
Between Feb. 20 to 28, the S&P 500 fell about 14% and the price of BTC slid 13% amidst the spreading coronavirus (Covid-19).
This has caused people to question Bitcoin’s capability to function as a safe haven like gold. However, as we saw during this period, even the yellow metal wasn’t unaffected.
The prices of bullion fell about 5% at the end of February just like it did during the 2008 financial crisis. This simply means the market is experiencing a “very strong risk-off environment,” where investors are selling off even those assets that are typically seen as relatively safe.
“What is a safe haven anyway? Gold is down 2% since this whole market rout started yet nobody questions its status. In the initial volatility of such an event ppl tend to sell everything indiscriminately. Let’s see what happens when the panic subsides,” said former eToro analyst Mati Greenspan.
A hedge against inflation & central banks
What exactly is bitcoin safe from? As we are seeing, Bitcoin is surely not a hedge against the pandemic or the falling corporate profits.
Bitcoin functions as a hedge against “inflation, geopolitical strife, and central banks,” said Greenspan.
A similar opinion is shared by Bloomberg’s Joe Weisenthal who argues that you can’t expect the digital asset to hold up well in the current financial market panic and it is still a safe haven asset.
“The most important thing is that to talk about something being a “safe haven” you have to ask “safe from what?” Different assets — gold, land, diamonds, ammo, canned sardines, Treasuries, dollar bills, Bitcoin — can each offer safety, but from different risks,” said Weisenthal.
“Treasuries won’t help you in a natural disaster or a war. Canned tuna won’t help you in a liquidity crisis. Gold bricks won’t help you if you have to escape a country on foot (too heavy). For each safe haven, there is its time.”
And just like investors sold their gold to acquire cash, “any hedge fund that was long bitcoin is having to liquidate.”
Raoul Paul Founder and CEO Real Vision Group said, it is all because “VAR takes no prisoners,” which is the measure of risk connected with volatility in a portfolio, as the volume goes up, investors have to reduce risk.
“It’s a buying opportunity but no need to rush in yet. The current event in markets will accelerate the need for the new financial system over time. We know where this is leading to – the digital revolution. Hodl on to your hats…!” Paul said.
