Update: In a turn of events happening one day after this article was published, the stimulus package getting signed into law last night caused the Dow to soar today while bitcoin is remaining flat. This is perhaps the first time since news of Coronavirus broke and the economy started floundering that it has not correlated to traditional markets. At noon on Thursday, 2020, the Dow was up 5.68% for the day, with BTC topping out at .07% on the last 24 hours. Read on for additional context…
With news that a stimulus package is ready to flood Wall Street with infinite brrrrrrr, bitcoin fell Wednesday morning March 25th at the same desperate rate as the Dow. Then they soared; and tanked again, together. Why are markets jumping crazily when the US is promising to bail out businesses to infinity? And how is this related to bitcoin’s status as a safe haven asset?
The morning after
On March 24, 2020, the US House of Representatives Congress signed a historic stimulus package totaling $2 Trillion. Senate agreement was expected in the face of an impending recession. On the same day, America’s POTUS proclaimed that we’d all be back to work and everything would return to normal by Easter. Despite these two initiatives, the Dow promptly crashed the next morning within an hour of opening, followed closely by bitcoin:
Throughout the day on March 25, both the Dow and bitcoin experienced heavy volatility as opposed to the settling down that this Wall St aid package promised.
Not even the assurance of infinite cash infusions to Wall St and businesses could quell fears of long term instability due to Coronavirus and what was already a fragile economy. Promising a one time $1200 check to American families did not help. Most US citizens are already out that much money and more since schools and businesses shut down two weeks ago. Both promises fell unsurprisingly flat.
Post Stimulus Package – where bitcoin comes in
Bitcoin has long been viewed as a developing safe haven asset. Before Coronavius and the recent market crashes, we saw this take effect during the China-US trade wars. Bitcoin did not react in a parallel fashion to traditional markets.
But since the Dow and other markets began to tank in late February, bitcoin has correlated quite closely to Wall Street indicators, including today’s morning after reaction. Indeed, even during the writing of this article, we’ve seen both the Dow and bitcoin take several steep dives and rises in tandem. [NOTE: except on March 26th, the day after the official signing in of the stimulus package, the two untethered.]
So why do bitcoin believers continue to stand by bitcoin as a safe haven, even while seeing it getting pushed and pulled pushed along with traditional markets? There are several reasons:
Scarcity – Cryptocurrency advocates know one thing well – there will only ever be 21 million bitcoins minted. On top of that, there are deflationary aspects hard coded into the Bitcoin Network. While the USD faces devaluation and potential hyperinflation, bitcoin can still be seen as a steady store of value.
An impending recession – During times like we are witnessing today, everyone is simply shoring up whatever cash they can get their hands on. This is a reaction to what is looking like a long term financial crisis. During a crisis, a safe haven status, such as with gold, can take a hit as investments of all types get liquidated left and right. Long term HODLers of bitcoin are ready to see this through and come out on the other side.
Dave Waslen, HedgeTrade’s CEO and Co-founder, says he has long term confidence in bitcoin as well as altcoins like Ethereum and HEDG:
“One reason to be bullish on cryptos in the long term is that they can operate in a peer to peer (person to person) fashion. If the dollar loses value during the implementation of this stimulus package, which it certainly is poised to do in leaps and bounds, people may begin running the banks. And while the FDIC is currently placing ads on social media telling people their money is safe, facts differ greatly. US banks, effective this week, have no reserve requirement to hold depositor funds. Even if just 5% of US citizens go to their bank today to withdraw their money, the banks simply do not have it. With bitcoin, it doesn’t matter if the price drops to $100 or moons to $100,000 – if you hold the keys to your bitcoin, no one can put any limits on how you save it or spend it peer to peer. Also, if the dollar begins to lose value, people will consider selling it and flighting into a safe haven, so that also bodes well for bitcoin and gold.”
If ever there was a time to test bitcoin’s status as a safe haven asset, this is it. But we also need to understand that during a crisis like we are facing today, which is completely unprecedented, the uncertainty of economic solvency weighs on the mind of every investor, no matter the asset.
Be that as it may, bitcoin and other altcoins are appealing in a crisis because even though their prices may react to traditional markets, they are still money systems that rest outside the control of Wall Street and Central Banks. Every day the lack of efficiency and fairness imbued in our current monetary policy becomes more evident. And every day, companies like HedgeTrade continue to build alternatives.