Bitcoin is not immune to coronavirus fluctuations - Jim Duffy

The coronavirus is causing panic across the global markets. Not mass panic yet, but it is causing lots of jitters. While we had hoped that it would largely remain in China with some small incursions into Asia, this has not been the case.

Prophecies by the crypto advocates, commentators and bulls have not come to fruition, says Duffy. Picture: Contributed
Prophecies by the crypto advocates, commentators and bulls have not come to fruition, says Duffy. Picture: Contributed

Even last week as the virus impacted Apple’s Chinese operations and global suppliers took preventative measures, markets digested the news calmly.

However, as the virus hits Europe with fatalities we are now seeing red, with the Dow dropping 1,200 points in a single ­sitting this week.

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It is at this juncture we were led to believe that cryptocurrency would be where the smart money would go as investors, sophisticated or not, would move funds from the traditional markets to the digital world. But, all is not going to plan it seems.

Bitcoin has long been viewed by many in the know as the digital coin that is a safe haven or store of value when fiat currencies or stock markets suffer big downturns. Almost treated as diametrically opposite to investment protocols, the traditional markets and cryptocurrency have enjoyed a seesaw relationship.

When one overheats, or in this case ­suffers a major lack of confidence as a result of geo-socioeconomic affairs, the other becomes the investment place of choice. In fact, many crypto commentators over the last five years have been ­happy to make this case, quite ­literally waiting for fiat currency to fail, small countries’ economic systems to go bust or stock markets to crash.

But, while this new market tumble ensues, there does not appear to be a rush to safety in the likes of Bitcoin. So, what does that say about how investors view the digital currency? Over the last seven days, Bitcoin is down almost 2 per cent in value.

Bargains to be had?

Other digital assets like Ethereum, Cardano and Monero are also down between 3 per cent and 8 per cent. It appears that what was prophesied by crypto advocates, commentators and bulls has not come to fruition. Not even a slight bump up in price.

According to CoinmarketCap, which lists the values of cryptocurrencies rather like the Dow or FTSE, 18 of the top 20 cryptocurrencies by market capitalisation dropped in the last week.

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Unless I’m missing something either cryptocurrency has had its boost already this year and investors are not adding any more, or they see more value to be gleaned as traditional stocks have fallen and there are bargains to be had. But, let me put this into perspective to be fair to the crypto world.

In the last three months, Bitcoin has risen by 25 per cent. Cardano, as ­mentioned earlier is up 48 per cent and Monero is up 41 per cent. So, crypto has made significant gains on the start of 2020.

Global investors in these currencies may feel that these rises are enough and want a period of calm before pumping in any further money or interest. In this context, the crypto markets seem stable and decent value for money for those who have invested in the last year. One thing to note is that they have not fallen greatly as a result of the coronavirus. This may be the key to what makes them different.

Many enthusiasts would love to see the likes of Bitcoin rising on the fall of the Dow, Hang Seng, FTSE and IBEX 35. It would help cement Bitcoin as a safe place to invest when ­traditional markets slide. But, while the ­crypto markets have not seen real gains over the last seven days, they have not experienced the same seismic plunges as the global ­markets we all know, and where our pensions and bonds are sitting right now. This is where the difference lies.

To coin a phrase from Theresa May, the cryptocurrencies markets seem strong and stable at the moment, while the fiat-led market falls. As we watch the slow motion car crash in traditional markets reacting to the reach and spread of coronavirus, the crypto world is either ignoring it or impervious.

In short, cryptocurrency is reacting differently and we need to look at its behaviour to understand it for the future.

- Jim Duffy MBE, Create Special.