A Crypto Silver Lining in a Dark Period
As the coronavirus pandemic rages across the globe and suppresses the financial markets, there is some encouraging data from cryptocurrency trading sites that have not escaped the attention of investors.
Bitcoin and Volatility
Virtually every financial market has posted losses during this health pandemic, and cryptocurrencies have not been spared either. The highlight for cryptocurrencies was in mid-March when Bitcoin lost over 50% of its value. However, the foremost crypto coin has led to an impressive recovery in the industry, giving investors some small relief during a crisis.
Volatility has always inspired fear among investors, and this has clearly been the major reason why investors have shied away from this space. But there has been a somewhat role reversal in recent weeks. For instance, the S&P 500 has posted a relative volatility score of 200% in recent weeks compared to a normal average of 27%. This kind of volatility only compares to the Great Recession of 2008 and the stock market crash of 1987. During the same period, Bitcoin has posted a volatility score of 138% against a normal average of 65%. All of a sudden, traditional markets are now more volatile than cryptocurrencies – and investors are watching.
The Power of Volatility
Volatility in cryptocurrencies has always been a key turnoff for investors, but as governments implement measures to alleviate the economic pressures that have been inspired by the coronavirus, the space is now attractive. Governments all over the world have switched on the money-printing machines to help resuscitate a sick global economy. Tough times call for tough measures, but the dangers and risks of this are well known. Bitcoin came about as a solution to the 2008 global financial crisis, and the original dream is now in focus again. Here is digital money whose supply cannot be manipulated and there is no threat of inflation. As fiat supply is boosted, Bitcoin now clearly looks like sound money.
Crypto Popularity Rises
As investors now take a keen look at cryptocurrencies, they are realising the huge opportunity that is being presented. Already, the price action within the space suggests a risk-on attitude among investors. Sudden massive dips have attracted aggressive bids from all types of crypto investors. ‘HODLers’ have taken advantage of ‘cheap’ prices to boost their holdings, but it is ‘new’ money that paints the picture of an attractive asset class. Cryptocurrency trading sites have reported a surge in new users and deposits, as well as higher trading volumes. There has been, overall, many more buyers in dips than backers on the sell side when prices turn higher.
Another positive fundamental for cryptocurrencies has been the rise of stablecoin demand, especially those pegged to the US dollar. The greenback has emerged as an unlikely safe haven during the COVID-19 pandemic, ahead of traditional contenders, such as the Japanese yen and the Swiss franc. Crypto investors have also been keen to gain exposure to the US dollar by boosting their stablecoin holding, particularly Tether (USDT). This has followed the trend often exhibited in traditional markets where investors reduce exposure to risky assets and shift to less risky ones during crisis periods. Stablecoins have now emerged as the equivalent of treasuries and bonds in the digital realm, with their low volatility levels providing investors with the much-needed stability in unstable times.
The Coronavirus and Investing
The coronavirus pandemic has altered every facet of human living. In investing, it has opened the doors for thorough scrutiny of the opportunity that the crypto space presents. Investors are now ready and willing to seriously investigate the idea of digital money, with society now literally confined indoors. As well, both governments and institutions are seeing how the underlying blockchain technology that powers cryptocurrencies can provide practical solutions during this crisis. This will no doubt attract big money to the industry, as institutions face limited pressure to actively pursue the crypto opportunity. Instead of entirely avoiding the industry because of challenges, such as exchange security vulnerabilities, big money may actually contribute to finding solutions and furthering positive research.
Already, most traditional investment firms have expressed interest in the crypto investment arena. Still, the ultimate tailwind for Bitcoin and other cryptocurrencies would be public adoption. With the industry experiencing positive sentiment in the current circumstances, there is definitely a higher ceiling for adoption to be filled up. There is also the Bitcoin halving coming up next month that ensures investors can look forward to some light in an already lengthy, dark tunnel.