By Will Heasman
8 min read
Last week, chaos reigned in the cryptocurrency markets. The price of Bitcoin almost halved in one of its bloodiest days in seven years. Adding insult to injury, altcoin markets fell in tandem—erasing $25 billion from the total crypto market cap.
Unlike previous dumps, however, Bitcoin's latest descent appeared to be correlated with systemic risk resulting from Covid-19—and mirrored movements in the stock markets.
As governments took unprecedented measures to curb the spread of the coronavirus, including travel bans and lockdowns of metropolitan areas, markets around the world posted the most dramatic freefall since the 2008 recession. The US equities market cited a loss of $11.5 trillion, wiping off almost four years of solid gains. And even gold—the ultimate safe haven—fell to a 3-month low, following a sheer 10% drop in the same week.
Bitcoin, S&P 500 and gold, showing a similar correlation (Source: Yahoo! Finance)
With the coronavirus panic transcending markets and breaking convention, Decrypt asked leading cryptocurrency and finance experts to give their verdict on the best, middle, and worst-case-scenarios for Bitcoin in the coming weeks.
They say it's best to end on a high note. So, with that in mind—here's the bad news first.
Right now, the coronavirus is showing no tangible signs of slowing, though scattered data suggests that the arrival of spring and summer may help curb the virus.
"Should the virus continue to spread, it will likely be devastating for all assets, including Bitcoin," Mati Greenspan, the founder of Quantum Economics, told Decrypt.
It's not just Bitcoin's value at stake, either. Luno Exchange CEO Marcus Swanepoel told Decrypt that adoption rates would be "mildly affected." Which, in turn, would impact BTCs price "in the short to medium-term." It's not unexpected—especially in the wake of a significant crash—to see adoption rates slow; after all, blood filling the street doesn't exactly scream 'jump in.'
Nevertheless, Swanepoel added the caveat that sluggish adoption is not something that will spell significant trouble in the long run. "Bitcoin will recover to its original value," he said.
Gold’s luster as a safe haven might have tarnished in the current crisis, but Bitcoin’s own price plunge has made it difficult to maintain its risk-off narrative. Amid this recent slump, even the most ardent proponents of Bitcoin's safe-haven status have been forced to reevaluate, with the likes of Tyler Winklevoss tweeting that, “The fact that it's not acting how you might expect only underscores just how early it is.”
Ran Neuner, the host of CNBC's Crypto Trader, suggests this is a lingering sore spot for BTC. "I fear that Bitcoin may be going through a mild identity crisis," he told Decrypt. Neuner implies that Bitcoin's safe-haven standing counted on its not being correlated to traditional assets, a thesis that had held—until the recent crisis.
Ran NeunerI fear that Bitcoin may be going through a mild identity crisis.
"Bitcoin is now being tested for the first time and it is, unfortunately, behaving like a highly correlated asset," he said. "I suspect Corona and its implications will be very far reaching and be here for a long while. I suspect that central banks, driven by the USA and Trump's needs to win an election will do much more damage to the already over inflated economy and hence I think Bitcoin’s true test is now."
Regardless of the naysayers, venture capitalist and BTC bull Tim Draper told Decrypt that he stands by Bitcoin as a hedge against macro risk.
"I expect Bitcoin to balance between a safe harbor like gold and a stock like Amazon. Buyers will want to store value in the face of a downturn. The sellers will be strapped for cash and be forced to sell," Draper explained.
Still, with the equities markets in a shambles, gold expunging its 2020 gains, and Bitcoin capitulating on a grand scale—there might soon be nowhere else to turn.
In an attempt to stem the bleeding markets, the world's economies have begun rolling out stimulus packages. Last week the UK announced emergency spending to the tune of $39 billion. This boost came in conjunction with the Bank of England slashing interest rates by half a percent.
The US followed suit on Sunday, with its own economic life preserver. The Federal Reserve cut interest rates to near zero and pumped $700 billion into the financial sector.
However, lengthy deliberations on a fitting coronavirus stimulus package have decelerated the US government's efforts to revive the markets.
Nevertheless, once passed, the package—along with the Fed’s intervention—could be the defibrillator needed to restart the US economy. And the Trump administration is considering even bolder moves; just today, Treasury Secretary Steven Mnuchin floated a plan to send out $1,000 in unrestricted cash to Americans to help them pay the bills.
As long as Bitcoin continues to move in step with traditional assets, America's efforts could prove to lessen some of the ongoing pain.
"Any kind of stimulus is more money in the system," says Swanepoel, alluding to the notion of stimulus trickling into the crypto markets.
Economic meddling aside, Greenspan affirms that as long as efforts to contain the coronavirus prove constructive, Bitcoin could be in for a "full recovery within the next few months."
Now for the good news. For the most part, the consensus appears to be wholly positive for Bitcoin, in the long term.
"The best-case scenario is people recognizing Bitcoin as a safe haven," says Swanepoel. "If that's the case, it will then become one of the world's biggest asset classes in just a matter of months."
While some have distanced themselves from the “Bitcoin as digital gold” analogy, Swanepoel implies that now is the perfect time to draw a parallel between them. "If we look at gold during the financial crisis, we saw its price fall by 25% and then totally recover all losses in a very short space of time. In 4-6 months, we should have a far clearer picture," he argues.
Indeed, the same happened in late February. Gold slumped from its previous 7-year high—only to stabilize, rebound, and break its previous record. Now—despite Goldman Sachs declaring it "immune" to coronavirus—the precious metal finds itself at a similar impasse to Bitcoin.
Gold three-month chart (Source: Tradingview)
Neuner concurs with Swanepoel, suggesting that Bitcoin might just need a little time to adjust.
"It is simply too soon to come to any conclusion or to speak credibly about BTC as a non correlated asset," he said. "The true test of correlation comes over a long period of time, through multiple bull and bear markets, crises and recessions, and this is something that gold has managed to establish."
Meanwhile, Greenspan maintains that Bitcoin can only come out on top once the virus has vanished and the economic status quo has returned. "Should this scenario materialize it would be very good for asset prices across the board and present quite an opportunity for all investors," he said.
Draper, however, goes a step further. With coronavirus frenzy nearing fever pitch, and investors seeking an exit route out of every perceivable risk, he sees an opportunity for BTC to overhaul the global financial infrastructure.
Tim DraperIt is possible that this crisis drives people to look at Bitcoin as an alternative to the current shaky banking system.
"It is possible that this crisis drives people to look at Bitcoin as an alternative to the current shaky banking system," Draper says, "People could start recognizing that their governments need transforming, and the governments start realizing that they need to provide better services for lower taxes and see opportunities to better provide those services via Bitcoin."
In the meantime—despite its price taking a tumble—Bitcoin remains fundamentally unscathed. In its ten-year lifespan, BTC has crashed and recovered in countless cycles, been declared dead 380 times and counting—and yet somehow, has managed to prevail time and again.
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