The coronavirus has basically taken China out of the Bitcoin market, hurting prices. Bitcoin is down … [+]
Remember when Bitcoin was supposed to go —oh, never mind. I’m not saying moon.
Remember when Bitcoin was supposed to be digital gold? That’s what guys at Goldman Sachs were saying for at least two years. The theory: Bitcoin would behave as a safe haven asset, a digital one, in times of trouble. When the recession comes, everyone will want one.
Many people expected Bitcoin (BTC) to be up this week. Sort of like it did in the immediate aftermath of the U.S. assassination of the head of the Iranian Regulatory Guard Corps Qassem Soleimani, writes Forbes contributor Steven Ehrlich.
It’s down again today. After reaching a recent high of nearly $10,500 two weeks ago, the price of Bitcoin has collapsed like the rest of the world’s equities markets, falling to $8,645 on Friday.
The Bitcoin-as-gold comparison is not necessarily nonsense.
Gold has more value than most precious metals due to its relative scarcity and acquisition difficulty. And Bitcoin has been designed to be scarce and difficult to acquire. The major difference between the two is Bitcoin’s historical high volatility.
“We have to remember that Bitcoin is still a small market cap instrument and there will be high volatility in the short term,” says Catherine Yushina, COO at Fination & Sky Capital Management in the San Francisco Bay Area. “We should focus on the longer-term view and look at the Bitcoin price history,” she says. “It’s been on the rise, overall. Through two halvings and a third one coming up in May 2020, lower BTC block reward should lead to less inflation and drive the price up,” she says.
A Bitcoin logo is shown at a Bitcoin trading store in Hong Kong. (AP Photo/Kin Cheung)
Bitcoin has shown a degree of correlation with gold and other safe haven assets in the past, but the narrative that Bitcoin is a perfect substitute for gold is not as prevalent as some may believe. Additionally, while Bitcoin has some characteristics that compare favorably with gold, for many people with low risk tolerances who seek to protect their wealth above all else it remains far too volatile.
Bitcoin investors are still looking out to the future. Everything is down today, even gold prices are off by 2.94%. That’s actually worse than Bitcoin’s performance on the day.
“I recommend taking a multi-year view on bitcoin speculation,” says Bitcoin investor and crypto market advisor Dave Carlson. “Once it has matured — think 10 more years at least — the price should be much more stable, as the rate of new coin generation will be much slower,” he says, adding this caveat about Bitcoin as a potentially safe, digital haven: “If you are in Venezuela right now, Bitcoin is absolutely the new gold,” he says about the economic depression there that has debased the currency.
A Russian-turned-well known Aussie crypto entrepreneur, Sergei Sergienko, says Bitcoin has shown little correlation to anything over the years.
“It is heralded as digital gold,” he says. Everyone’s heard this a million times by now.
The reason for the roughly 10% drop this week? Sergienko lays it out like this in a Telegram chat from Sydney on Thursday:
The price might have already been a little overheated due to the expected halving in May this year. The coronavirus is another reason. China is affected the most from the outbreak.
“China historically was the highest user of Bitcoin, but because of quarantine measures, a lot of the crypto trading in China has been halted,” he says. “And a lot of it was sold for cash.”
Bitcoin and Tether, a dollar linked digital currency, or stable coin, are traditionally used in informal commerce within China. Falling demand due to some borders being closed has impacted that informal economy. “Panic mode has set in and people are selling their Bitcoin and putting it in Tether. As much as I hate to admit it, Tether and other stable coins seem to be the digital gold of today,” he says.
A man uses the Bitcoin ATM in Hong Kong to exchange it for Hong Kong dollars. (AP Photo/Kin Cheung)
The volume of Bitcoin/Tether traded surpasses that of Bitcoin/dollar.
For now, Bitcoin is far from its moon landing. In fact, it’s safe to bet it won’t see lift off as markets crash due to pandemic fears. Bitcoin may not end up being recession proof, either.
“If you go back in history, gold dropped heavily in 2000 and 2008, together with the stock markets. Then it outperformed the equity markets in the years after until equities made a new all time high once fears of the crisis went away,” says Michael van de Poppe, CEO of BonSanca & Trader at the Amsterdam Stock Exchange. “Bitcoin is dropping due to heavy economic instabilities. People want cash on hand in case of more trouble.”
Don’t worry, Bitcoin true believers, Bitcoin is the single best performing asset of 2019. It beat the S&P 500 even though last year was not the greatest year for Bitcoin gains.
Bitcoin is slowly starting to behave more like gold, says Yushina. “It’s on its way to live up to its digital gold title.”
For Naeem Aslam, chief market strategist at AvaTrade in London, investors in Bitcoin have to look at the overall picture. Year-to-date gains for BTC are good — up around $2,000 since January.
“But if I compare BTC price action with the volatility index, the Vix, the actual fear gauge, then I can tell you that there is nothing better than the Vix,” he says. The year to date gains are over 155%.
“I think investors aren’t really interested in Bitcoin because the reality is that the equity markets are going through a phase of correction and possibly a slow growth period,” he says. “This doesn’t do the job for Bitcoin.”