Is Bitcoin a safe haven?

 

In an environment where the whole world agenda is entirely Corona virus, we are watching and experiencing the increasing impact of the epidemic on social life, economy and market day by day.

In these days when we realize the importance of human health more than ever, we all have duties and responsibilities that fall upon us. We are at a time when we need to pay utmost attention to social isolation and personal hygiene.

With the effect of quarantine measures, curfews and “stay at home” warnings due to the epidemic, the demand for certain goods and services has decreased globally with the effect of daily life. The decrease in individual and institutional spending, the closure of workplaces, schools, and the start of people working from their homes have significantly slowed commercial and social life. With the slowdown of production, the slowdown of trade, transportation, tourism and entertainment due to restrictions on travel, and even coming to a standstill, naturally started to create danger signals for some business sectors. This caused considerable volatility due to risk perception in the money and capital markets. Especially with the outbreak spreading in America, we are witnessing historic declines in the S&P 500, commodity and gold prices as a result of expectations that business activity will decrease in line with the rate of increase in the epidemic. The FED, which is expected to reset interest rates on March 18, urgently put the meeting on Sunday, March 15, and the announcement of the 700 Billion USD QE decision did not have a positive impact on the markets, rather S&P 500 made its second biggest decline in history on March 16, making it 2,900 points closed below 11%. However, on the same day, FED announced an additional QE decision of 500 Billion USD. In the meantime, it is worth noting that the VIX Fear Index rose above 80 for the first time in history.

The world is shifting towards a New Order

In short, the world is giving a serious test: not only in economic and monetary terms, but also in social life, human relationships, ways of doing business in many ways, perhaps to create a new order that will provide balance on different axes.

So how does Bitcoin move in markets that react under this panic of recession?

Bitcoin prices suffered from the economic shake caused by the epidemic and, in contrast to the “safe harbor” rhetoric, recorded a serious decline.

In fact, it is possible to say that the current crisis is the deepest global crisis Bitcoin has ever faced. Bitcoin’s launch philosophy was that it was born as a reaction to the irresponsible and irrational financial institutions that created the 2008 crisis. In order to crown this protest stance, Nakamoto even instilled The Times headline of Jan 3, 2009 within the Block’s raw data: “Chancellor on brink of second bailout for banks.”

It is observed that the general reaction in people and institutions during this crisis in the global scale is to return to cash and to remain liquid as possible, rather than to park their assets in safe havens and continue their investments. For this reason, not only equity markets but also gold prices are declining due to high sales. Therefore, the tendency of institutional investors to return to cash and the tendency of individual investors to remain in cash to meet basic needs both restricts the demand for Bitcoin as well as brings about the sale of existing assets. We even see sales from crypto assets in wallets that haven’t seen movement for last 10 years.

Bitcoin, which has declined to 3782 USD with a serious wave of sales, has shown some very interesting developments in terms of price mobility.

Prices Went Into Free Fall

Kripto varlıklar üzerinden kaldıraçlı işlemler yapılabilen BitMex borsasındaki pozisyonların, 12 Mart’ı 13 Mart’a bağlayan gece sabaha karşı margin call’ların anlık gerçekleşememesi sebebiyle oluşan kademeli pozisyon kapamaları nedeniyle ardı ardına tetiklenen kontrat satışları ile beraber fiyatlar “serbest” düşüşe geçti.

Prices fell “free” with successive contract sales triggered by the cascade liquidaton of positions on the BitMex Stock Exchange, where leveraged transactions can be made on crypto assets, due to the lack of instant margin calls on the night of March 12 to March 13.

At that moment, trading was interrupted due to a hardware problem in the cloud service providers, and 25 minutes later, when the order books were opened, the price increased by 1500 USD and again reached 5200 USD levels. Serious discussions is still under way over whether BitMEX’s sudden technical shortage was a central intervention and whether the exchange had ceased operations. The fact that they were attacked by DDoS instead of the hardware issue announced earlier in the official statement by BitMex does not does not go beyond igniting the discussions.

At this point, it is highly thought-provoking that the market has been affected at this level by the trading transactions in a single exchange. The sound functioning of derivative trading markets such as Futures depends on the depth, maturity, and regulations in these markets. It is not possible at this stage to talk about regulation and supervision in cryptocurrency exchanges and markets. Investors are therefore expected to review certain security and liquidity criteria while choosing the exchanges to leverage. However, both the financial and technological literacy competence of the individual is important here.

On the other hand, as of March 17, the entire cryptocurrency market had a total market value of 151 Billion USD, while Bitcoin’s market size was 96 billion USD. According to the reports of the World Gold Council, the total gold investments of ETFs based on gold and similar products amounted to 145 billion USD at the end of February corresponding to 3,033 tons. In terms of benchmarking, let’s share another data : while the gold market’s daily trading volume was 145 billion USD worldwide, Bitcoin’s daily volume was 40 billion USD as of March 16th.

There is yet a long way to go…

In light of this data, it seems that Bitcoin, compared to safe-haven gold, has a long way to go for both market size and mass adaptation. In order for bitcoin to be accepted by a wider audience, of course, it is important that it also meets a variety of needs. If it is going to be a payment tool, its technological infrastructure needs to be scalable in terms of payment quantities and speed. If it is to be considered as an investment or a means of store of value, it must create confidence in investors. In such volatile markets, it is understandable that new users abstain from entering the system.

However, on the other hand, new developments regarding the use of Bitcoin in collections are happening. Recently, Starbucks announced that it has begun testing efforts to accept Bitcoin using Bakkt infrastructure. This is a very important step in terms of expansion.

Another important issue specific to 2020, of course, is that the block award will be halved in May. When past price movements are analyzed, it is observed that there is an upward trend after the halvening.However, given that the investors and miners in the system have different motivations and structures with previous periods, it will be exciting to be watching how Bitcoin will move in later periods.

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