Bitcoin in the Age of Coronavirus
Fears of a global spread of COVID-19, also known as the Wuhan coronavirus, seem to have sparked a renewed interest in Bitcoin, but investors should still be cautious when approaching this cryptocurrency as a "flight-to-safety" asset. Various online financial publications have noted that Google searches for "Bitcoin coronavirus" have multiplied in the middle of March, and this coincides with the deep impact that the outbreak has had on global financial markets, but there is more to know about what is taking place in the digital currency exchange markets.
The first thing to know about the onset of the global financial crisis caused by the coronavirus effect is that no one knows how long it will last. Quite a few economists have been warning that the world is due to experience another economic recession, although of a lesser scale when compared to what happened in 2008. There is a second element to be aware of: While many investors flock to bonds and gold during times of financial turmoil, Bitcoin has not reached this status yet.
We can all agree that Bitcoin is more useful as an investment commodity than a practical currency, and the cryptocurrency is certainly a bona fide store-of-value instrument, but the sticky volatility that has accompanied Bitcoin from the beginning does not seem to be going away anytime soon. When the world's financial markets tumbled on March 9 as news of the coronavirus outbreak painted a worrisome picture, Bitcoin followed suit by losing nearly 25% of its value since February 19; this is more than the value lost by the S&P 500 index since the same date.
Looking Into How the Market is Reacting
What cryptocurrency market analysts are seeing is a reaction that makes sense when taking into consideration a couple of factors: One is the status of Bitcoin futures at the Chicago Mercantile Exchange, and the other is a strategy that many active traders tend to follow whenever a Bitcoin buying spree appears to be on the horizon.
Bitcoin futures have been pointing downward ever since the token reached an exchange price higher than $10,000 in mid-February. This can be explained by traders becoming used to the selling cycles of Bitcoin; whenever $10K is reached, a pullback ensues. What many other traders would do involves closing their positions right before a rally materializes; they do this based on technical analysis, volume levels, and headline news. This strategy of selling before a potential rally will help to drive prices down, thus resulting in more comfortable positions before buying again.
In the end, Bitcoin can be a good investment strategy and an alternative during times of financial uncertainty, but investors need to be on top of their positions constantly, thus turning them into day traders.