China recently saw a serious outbreak of a deadly coronavirus that has already taken the lives of over 200 people and almost 10 thousand has been reported as infected (as of 1 February 2020). It is probably the worst kind of ‘epidemic event’ since the SARS outbreak in 2003. As a result, China closed down some of their cities with a total population of over 20 million. Chinese are even began to build a specialized hospital with plans to finish it in only 2 weeks or less.
It goes without saying, but we can notice trend that recently appeared - when traditional markets are in peril, alternatives emerge – in this case, crypto economy and gold (traditional safe-haven asset), both tend to thrive. And in time when the second-largest economy by GDP in the world goes through the turbulence of the kind, financial and stock markets across the globe react and already starting to see the downtrends on the charts.
After the virus outbreak, we’ve seen reports that the FTSE100 took a serious blow also Dow Jones Industrial Average futures spiked down with fears that the virus will impact the industrial sector. Key figures went public, the most notable person being Japanese Economy Minister, who said that there are increasing concerns about the impact of the epidemic on the global economy.
Considering the fact that most economic advisors are expecting that we will be hit by the economic crisis in the near future, and now we have to deal with a health crisis as well. It’s not surprising that Bitcoin and gold have both been performing remarkably well recently. Gold has traditionally been protection against turbulent market movements and a cure for instability of stock markets. Historically investors use gold (and other precious metals/valuables, to some degree) to protect their cash stock reserves in times of crisis.
While Bitcoin is new to the safe-haven game, it's apparent that slowly BTC will be embranced and start to serve role similar to gold. After all Bitcoin is often called ‘digital gold’ by many already. We can see that Bitcoin is quite detached from traditional markets, and somewhat negative correlation can be observed. Additionally, it’s not the first time Bitcoin stands in opposition to bad news hitting regular markets. Every mention about global unrest (recent US-Iran clash), trade war and new tariffs imposed by President Trump on imported Chinese goods or basically any main industries receiving significant hit or expecting serious downtrend – these are the times when Bitcoin is usually rising.
In a hindsight, we can spot trend that owning BTC or other cryptocurrencies can be a great hedge against uncertainty of traditional markets, even seasoned financial advisors are starting to notice Bitcoin and are suggesting to allocate 1%-2% of your savings in BTC. I believe we can upgrade this strategy and add other promising altcoins to our saving asset portfolio, just to have all angles covered.
Stay Safe!
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