Created in 2009, Bitcoin is considered an unstable and high-risk asset, but in comparison with other market instruments such as the S & P 500,it shows better results.
In 2020, when the world is in crisis due to the coronavirus pandemic, and states in different countries are printing huge amounts of fiat money to support the economy, Bitcoin is waiting for the main test in the process of becoming a quasi-currency like gold. And with this test, the researchers believe, he will successfully cope.
Now gold and Bitcoin will benefit most from the unprecedented monetary stimulus, which is accompanied by a fall in the stock markets.
The decreasing volatility, the growth of open positions and the comparative dynamics of growth, which can be observed against the background of previously falling stock markets, mean that the first cryptocurrency is entering the maturity stage. It is becoming more and more a new version of gold than just an asset for speculation.
In the United States, positive testing of a drug against coronavirus has been reported. Has this caused growth in the stock and cryptocurrency markets?
The growth of Bitcoin
The week from April 27 to May 1 was one of the most successful for the first cryptocurrency this year. During this time, the price of BTC rose by 17%, rising from around $ 7,500 to $ 8,800. Moreover, having broken the mark of $ 9000 on Thursday, April 30, bitcoin soon rose close to $ 9500.
Despite the fact that it was not possible to stay above the psychological level of $ 9000 cryptocurrency, investor sentiment on the eve of the third in the history of halving definitely took on more positive shades.
This is evidenced, for example, by the so-called “Index of fear and greed.” In the middle of the week, he emerged from a record period of extreme bearish sentiment seven weeks long, rising to 28 points. By the end of the week, this figure is already 45 points. This is still classified as “Fear,” but a nearly three-fold increase in the week eloquently indicates a change in mood.
As ARK Invest analyst Yassin Elmanjra drew attention, this week the average annual price of bitcoin only for the second time in history approached the level of $ 9000.
The only time before this, the average annual price of BTC rose above $ 9,000 at the beginning of 2018 against the background of growth to historical heights of $ 20,000 in December 2017. The subsequent drop in bitcoin also affected the average annual price: by early 2019, this figure fell below $ 6,000, starting from that moment’s current recovery.
Also, the shares of most companies began to rise in price. For example, quotes for securities of United Airlines Holdings, American Airlines Group, Delta Airlines grew by 7-10% in 24 hours. The capitalization of large American retail stores Macy’s and GAP for the same period increased by 12-15%.
The shares of the Royal Caribbean Cruises and Carnival cruise companies, which were suspended during the quarantine introduced in the United States due to the coronavirus pandemic, significantly increased in price. The value of the securities of these firms over the course of time rose by 60%, after which the daily growth decreased to 13-15%.
Why did such changes begin to occur?
One of the reasons for the recovery in the stock market could be investors’ expectations that soon the coronavirus pandemic will decline. Recently, leading American expert on infectious diseases, Dr. Anthony Fauci, said that the results of the study of the test drug against Covid-19 “Remdesivir” company Gilead Sciences showed “good news”, reports CNBC.
According to him, it is proved that the medicine can block this virus. When you know that the medicine is working, you must tell the people in the placebo group so that they can take it. This will be the new standard of care.
Many analysts agreed that the stock market began to grow on the good news about testing the drug. This also provoked a rise in the price of bitcoin. Its price follows the US stock index S&P 500.
In addition to the fact that the first cryptocurrency is ready for a new rally, analysts predict that soon its rate may rise to the maximum of this year at $ 10,000. There are several reasons for this.
The first is the overcoming of bitcoin pressure from the stock market. The price of the coin was able to recover after falling in March to $ 3800, in contrast to stock quotes and stock indices. In view of this, it can be assumed that the current correlation between these assets will soon cease to exist.
Another reason is the presence of the Bitcoin futures market. This allows you to restrain the volatility of its rate and speculative growth, which contributes to a more equitable pricing. Also, an increase in the correlation between BTC and gold quotes will probably help the rise in the price of the first cryptocurrency.
Further growth in the value of bitcoin will depend on the external environment. If the correlation with gold continues, as well as problems in the global economy, BTC could become a new protective asset. Large investors are already familiar with the first cryptocurrency and in the know, although its rate is volatile, it is able to recover quickly.
Bitcoin could even theoretically renew the historic high of $ 20,000, set in December 2017. This will happen if the stock market continues to recover, and developing countries that have jumped in default swaps (CDS) will not be supported. If such states begin to default, then the demand for cryptocurrency will increase.
The coronavirus pandemic caused an increase in demand for cryptocurrency from institutional investors. They began to look for alternative ways of investing because of fears of collapse or suspension of the banking system.
In addition, the demand for digital assets has increased due to the emergence of a gray market for medical products. It holds trades in masks, EVL devices, antiseptics, virus tests and other things, and transactions are made in cryptocurrency.
There is an assumption that after a decrease in the prevalence of coronavirus, the cryptocurrency market will decline. However, until then, trading in digital assets is a good opportunity for speculation.
Economic growth indicators
Economic growth indicators are not the best right now. Last week, the United States reported GDP growth in the 1st quarter as -4.8%. Spain’s GDP fell by -5.2%, Italy by -4.5% and France by -5.8%. The situation is heating up. According to Christine Lagarde, head of the ECB, Eurozone GDP could fall even by 15% in the second quarter. However, stock markets in the US and Europe closed in the week, despite the inevitability that the next quarter will be even worse.
This may be partly due to a concentration of market capitalization of almost 25% of the S & P 500 market capitalization by 5 technology companies, which are likely to succeed in more people who work and stay at home. It may also be due to the fact that the stock market broke all ties with the real economy.
The concentration of the S & P500 rises, facilitated by the predominance of passive investments, which means that its performance does not reflect the effectiveness of most of its components. And the moral damage caused by the government’s desire to help out companies in a quandary eliminates the need to carefully examine balances and assess viability.
Ultimately, a sharp slowdown in economic activity will result in investors not being able to ignore it, and current P / E ratings will start to look absurd. This is where BTC appears. Its monetary system and core technologies make it one of the few assets that can be invested, which are not affected by the fluctuations in the economy that we face.
Its use will not be limited due to the lack of client mobility – users can make transactions from anywhere in the world. In fact, logistical constraints can increase the interest in Bitcoin operations by those who usually give physical money.
The market valuation for the first cryptocurrency is not subject to artificial support from governments trying to maintain the mood of investors and voters. This does not mean that the price of it will increase, while others will decrease. Back in March, we saw that when something goes wrong in the markets, BTC also suffers. Its price depends on the mood. But it is also linked to expectations of future adoption and demand, which are not related to demand drivers for most other invested assets.
From the point of view of the basics, the first cryptocurrency has nothing to lose in the upcoming crisis – there are no debts and incomes, its adoption in the future does not depend on happy and confident consumers. In fact, the opposite. Growing awareness of this, coupled with increased media attention, the upcoming half may be one reason for this week’s recovery. Or maybe it is engulfed in a wave of inexplicable optimism in traditional markets.
The big jump this week gave BTC the best April in recent years, with data suggesting that this rally is more supported by American investors, while the growth in spot volumes is greater than in derivatives.
The price of Bitcoin is rising against the background of general positive and expectations of a decrease in value in the stock market. More and more crypto traders are entering the market for trading. The total trading volume has increased significantly, especially for the first cryptocurrency. However, investors should not relax, waiting for Halving the most unexpected price movements are possible.