The Coronavirus Hedge? Bitcoin And Gold Rising Together As Chinese Lockdown Expands

Bitcoin’s price surged 6% in 48 hours from the $8250 handle to above $8770. The price movements come as the coronavirus continues to spread in China.

The Wuhan virus epidemic continues to plague throughout the country and abroad. Medical authorities confirmed a fifth case of the SARS-like virus in the United States. Much broader markets like the U.S. equities have been affected by coronavirus fears. It’s quite likely Bitcoin is getting caught up in the turbulence.

China’s Coronavirus Keeps Spreading

On Sunday, the Centers for Disease Control confirmed the fifth case of coronavirus in the United States, this time in Arizona. Authorities have diagnosed U.S. residents infected with the Wuhan virus across the country. They live in Washington state, Chicago, Orange County, and Los Angeles County, California. They all recently visited the Chinese city of Wuhan.

Meanwhile, China has taken drastic measures to respond to the crisis. The urgent response underscores the seriousness of the epidemic. The government has quarantined the city, locking down two other towns as well, and plans to build a hospital in just six days to treat patients.

Stock Market Dreading Financial Costs of Coronavirus

Markets have taken notice. The New York Stock Exchange nervously retreated for the fourth consecutive day Friday. Over the weekend, Dow Jones Industrial Average futures sank with growing dread over the financial cost of the virus. At Monday’s open, the Dow took another plunge. Oil prices are down 10% as the panic continues. But the Bitcoin price and spot gold have surged.

Historically, gold has been a global macro hedge against uncertainty and economic slowdowns. But “digital gold” has stepped into that role as well. Bitcoin was designed in a way that digitally simulates the properties of gold (scarcity, durability, portability, and fungibility). Studies of its price actions have shown Bitcoin to be every bit as much an uncorrelated asset as gold.

Bitcoin Acting As Global Hedge, Again

When capital flees from bonds and equities, it usually takes shelter in harder assets like gold and even Bitcoin. That’s ironic. All but the most rabid Bitcoin “hodler” on the lunatic fringe of crypto adoption would say Bitcoin is very risky.

If the coronavirus spreads throughout China and further, it could wreak economic devastation. Sick people aren’t very productive people. And they don’t make great consumers either. If everyone stays inside, doesn’t travel, doesn’t work, doesn’t shop – the economy will slow down. But in the best case scenario, with a perfect Chinese response that contains the epidemic, the containment response itself can disrupt the economy.

The disruptions won’t be locally or regionally confined either. Wuhan is an important transportation hub. But it’s been knocked out of the global network. China is the world’s second-largest economy by GDP. But market analysts say the coronavirus quarantines and travel bans will knock GDP down in the first quarter.

If the crisis worsens, it might be the case that investors will seek protection for their money in assets that are uncorrelated to the traditional financial and stock markets. As stated above, Bitcoin and gold have already displayed those qualities.

Bitcoin is already up more than 2.5% on the day, while gold charts an increase of about 0.5% in the past 24 hours alone.

Disclaimer: This article is the opinion of the author, and does not represent professional financial or investing advice. First published on: Jan 27, 2020