The outbreak of the novel coronavirus caused a massive sell-off in traditional markets. However, cryptocurrencies also declined notably, causing many to question Bitcoin’s positioning as a safe-haven asset. According to the popular on-chain analyst, Willy Woo, the largest cryptocurrency, as well as gold, might have already started to decouple from traditional assets.
Financial markets have been in distress for the past month, as major indices and some commodities are charting serious losses. In times of the kind, the assumption is that investors would turn to safe-haven assets such as gold.
Bitcoin, however, has also been touted as an asset of the kind, primarily because of its negative correlation to traditional financial markets.
Nonetheless, the factor that many failed to account for was the seriousness of the crisis and the sell-off volumes. The S&P 500, as well as the Dow Jones Industrial Average, two of the world’s most prominent indices, decreased so viciously that it triggered Wall Street circuit breakers, halting trading for a certain amount of time. In times like these, people are looking to convert their assets into cash as a means of stability, and liquid markets suffered. This is one of the reasons that many believed caused the dump in both gold and Bitcoin.
Now, however, Willi Woo, suggests that the decoupling of both gold and Bitcoin might have already begun.
In the charts that he pulled out, Woo compares the performance of gold compared to the S&P 500 during the 2008 financial crisis and that of gold and Bitcoin compared to the S&P 500 now.
He identifies two key moments – the flight to safety point and the moment the decoupling actually begins.
According to him, the first point manifested back at the beginning of March when “traders exit risk-on leveraged positions and sit in USD. Retail investors sell to USD for runway (hard times ahead). All assets crash against USD.)”
Indeed, on March 13th, we saw almost all markets, including Bitcoin, crash substantially. Following this moment, per Woo’s analysis, “after peak fear, best assets for hedging the times ahead rise in value (Gold 2008, Gold & BTC 2020).
While Woo’s logic might be historically correct, there is one major variable that has to be accounted for. These are unprecedented times for Bitcoin – the digital asset hasn’t been through a worldwide financial crisis like the one in 2008.
And while it has performed very well since it hit the market, it’s still unclear whether or not it could serve as a hedge. For one thing, its volatility certainly prevents a lot of institutional investors from investing in it to hedge their portfolios.
However, there’s also the fact that Bitcoin is widely unregulated, and its performance is completely decoupled from any government intervention. While financial markets are receiving bailouts and monetary stimulus to keep them afloat, Bitcoin managed to retain its relatively high value entirely on its own.
Only time will tell if Bitcoin will disconnect itself from traditional markets, but so far, it does look promising.
