The spread of the new coronavirus in China has already led to a short-term panic in financial markets. But cryptocurrencies can, on the contrary, become the beneficiaries of such events.
International news agencies have been spreading panic for a week among investors concerned about the rapid spread of the Wuhan coronavirus. The disease spread beyond China and began to spread around the world. As a result, many airlines were forced to cancel flights to China, and tourists are subjected to strict controls at border control points. The tourism industry, airlines, and related industries have been hit hard.
According to the latest data, almost 8000 cases have been recorded (more than 98% of them in China) and 170 deaths. Isolated cases have been identified in many countries in Asia, North America and Europe.
On Monday, gold, silver and bitcoin opened higher against the backdrop of falling stock markets, confirming the theory of strengthening the first cryptocurrency in a risk-averse environment, especially when it comes to contradictions in international trade. However, the negative trend has not yet developed, and in the following days the markets are climbing again.
It is believed that bitcoin was created as a response to the financial crisis of 2008 and had serious consequences for the entire world economy. Over time, the cryptocurrency managed to win the interest of traditional investors, who began to consider the PTS as one of the tools for hedging against geopolitical risks.
This was clearly demonstrated last year, during the escalation of the trade war between the US and China. Then the bitcoin exchange rate significantly strengthened, as many believed that it could offer them protection from shocks in the financial markets. It is noteworthy that this happened against the background of a correction in stock indexes.
In may last year, the cryptocurrency dealer SFOX published the results of a study of volatility in the crypto asset market. In the report, he concluded that bitcoin shows “almost perfect negative correlation with the S&P500 index”. According to researchers, this confirms the status of bitcoin among investors as a hedging tool against global market risks. On the other hand, the correlation between bitcoin and the S&P500 is observed only in short-term periods, but it is not observed in long-term intervals.
It is no secret that the main players in the cryptocurrency market are Asians, especially Chinese. Even the closure of exchanges and the roundup of traders did not force the Chinese to abandon cryptocurrencies, and the mining industry is still concentrated in this country. Historically, it can be traced that when panic sales of classic cyclical assets begin in the middle Kingdom due to increased geopolitical or other risks, there is a growth of bitcoin. This is how the Chinese population tries to protect its assets. Below is a very clear graph of the inverse correlation of bitcoin and the index of shares of the largest Chinese companies MSCI China:
Therefore, we can assume that the further increase in tensions in trade relations between the US and the rest of the world, the outbreak of the virus epidemic, and possibly other factors, will fuel interest in “digital gold”. Moreover, in the classic markets, a correction is overdue, at least technical. The American stock market has been growing without major pullbacks for more than a decade, and anything, including a coronavirus, can trigger a downturn.
Now investors need a reason to fix previously earned profits, and the decline that has begun may snowball, especially if the spread of the virus that is paralyzing international tourism and trade can not be stopped in the near future. Such a situation can become a moment of truth for bitcoin, which has already been fixed above $9000. If the cryptocurrency manages to establish itself as a protective asset, it can give a strong impetus to the further growth of the PTS.
Authors: Nikita Kutsenko, Dmitry Kotegov, stipsoculus.com.