Recently bitcoin traders were touting that BTC has gained safe haven status because it climbed in parallel to gold and other safe haven assets simultaneously. Without any tests or checks BTC enthusiast were shouting across social media platforms that Bitcoin has become an asset to preserve wealth during global crisis and risk off trading modes.
Inexperience & Naivety
Once again, these enthusiasts showed their inexperience and naivety. Just because something happens once or twice or even three times, especially during a short-term cycle, doesn’t proven anything except a coincidence.
Bitcoin surged to 10.5k as gold soared to the 1650 price level.
Bitcoin was unable to move above the 10.5k price and began a huge tumble falling 50% of its gains in just a few days. While gold maintained its gains as stock markets around the world continued to decline as worries of global economic disaster looms. Bitcoin has shown glimpses of behaving like a haven asset, but the balance of evidence suggests it’s not there yet.
Safe Haven Gold
Gold continued to rally on safe-haven demand, with the precious metal gaining 2.5% Sunday evening. Bullion fell by $78 on Friday, its worst single-day drop in seven years as traders took advantage of profits but reversed after the closed orders were filled to regain its pricing. Gold was in a steep recovery on Sunday, gaining as much as 2.5% to $1,605.50 a troy ounce.
Over the weekend, futures on the Dow and broader U.S. stock market plunged anew over fears that the rapidly spreading coronavirus could drag the global economy into recession.
“Crypto enthusiasts trying to sell bitcoin as a global reserve asset have been kicked in the gut over the past few weeks. Not only has bitcoin failed to rally alongside traditional safe havens like gold and government bonds, the number one cryptocurrency has actually lost a step.” (CCN).
Bitcoin vs. Gold
Gold rallied over the weekend, Bitcoin is in a tight trading range as traders are unsure what to expect from the cryptocurrency market. Bitcoin is now more closely mirroring the price of oil, which is trading near a 14-month low.
Demand Curve for Oil
InCrypto reports that “The supply and demand curve for oil has been largely responsible for the depressed values. As international travel has collapsed, demand for crude has fallen in like measure. Because of the massively reduced travel needs, the international sales market has reduced as well.”
The bounce in value could produce a rapid increase in values, as investors buy in at ‘cheap’ prices.
US Fed Rate Meeting
The US Federal Reserve is now prepared to reduce interest rates this month even though it recognizes monetary policy cannot completely shelter a U.S. economy increasingly threatened by the coronavirus. Fed Chairman Jerome Powell opened the door to a rate-cut at the Fed’s March 17-18 meeting by issuing a rare statement Friday pledging to “act as appropriate” to support the economy reports Yahoo News.
In trying to figure out what to do, policy makers are pondering the same imponderables that investors are. Their initial thought was that the contagion would be contained mostly to China and that the impact on the U.S. economy would be small and fleeting. At the same time, Bitcoin traders are now trying to figure out a way to predict the value of Bitcoin.
The Halvening Event
The future of bitcoin might be more tightly associated with the Halvening scheduled to take place in early May, a pre programmed reduction in the amount of bitcoin paid to miners.