The spread of the new coronavirus in China has already led to a short-term panic in the financial markets. However, experts believe that cryptocurrencies can become beneficiaries of the epidemic.
For a week now, global news agencies have created panic among investors who are worried about the rapid spread of the coronavirus. Originated in the Chinese city of Wuhan, the disease is spreading throughout the whole world. As a result, many airlines were forced to cancel flights to China, and tourists pass through strict personal search at airports and border posts. Tourism industry, airlines, and related industries are being hit hardest by the outbreak.
According to the latest data, almost 8,000 coronavirus cases have been recorded (of which more than 98% in China) and 170 deaths. Isolated cases have been detected in many countries in Asia, North America, and Europe.
On Monday, prices of gold, silver, and bitcoin went up against falling stock markets. However, this trend has not taken hold yet, and in the following days, the markets are climbing up.
There’s a suggestion that Bitcoin was created as a response to the 2008 financial crisis which had serious consequences for the global economy. Over time, the cryptocurrency has been able to gain the interest of traditional investors, which began to consider Bitcoin as one of the hedging tools against geopolitical risks.
This was evident last year, during the escalation of the trade war between the United States and China. Then, the Bitcoin exchange rate has increased, as many investors believed that the crypto could protect their funds from financial market turmoil. It is noteworthy that this happened against the correction of stock indices.
Last May, SFOX published the results of a study of volatility in the crypto assets market. According the research, Bitcoin has a nearly perfect negative correlation with the S&P 500, highlighting public interest in BTC as a hedge against global markets. On the other hand, the correlation of Bitcoin and S & P500 is valid only for short-term periods, while in long intervals it is not observed.
It is no secret that Asians, especially Chinese are the largest share of players in the cryptocurrency market. Even shutting down of exchanges and raids on traders did not force the Chinese to abandon cryptocurrency trading and mining. With hindsight, it can be seen that Bitcoin price is always increasing when panic sale of classic assets starts in China, which are caused by increasing geopolitical or other kind of risks — in this way, the Chinese people are trying to protect their assets.
It could therefore be expected that a further increase in tension in trade relations between the United States and the rest of the world, the coronavirus outbreak, and possibly other factors, will enhance investors interest in cryptocurrencies. Moreover, the fiat market is about another market correction, at least based on technical market analysis. The American stock market has been growing without serious pullbacks for more than ten years, and anything, including the coronavirus, could be the reason for the beginning of the recession.
Today, investors more than ever need a tool to save previously gained profits, while the recession can produce a snowball effect, especially if the spread of the virus that paralyzes international tourism and trade will not be stopped in the near future. This situation may become a high point for bitcoin, which has already crossed $ 9,000 price mark. If Bitcoin becomes a protective asset, its price will continue to increase.