Bitcoin once tagged as a ‘safe haven’ asset, has recently proved bookmakers wrong again. On March 12, Bitcoin made further drastic losses, sinking from $10,000 to below $6,000 for the first time since May 2019 due to coronavirus scare.
At its current price of $5,500 on Friday, 03.05 pm Nigerian time, bitcoin seemed attractive to buy. However, investors’ bias was broken with heightened uncertainty in the global economic outlook.
For these reasons, we can expect that the current bounce towards $6,000 might be a temporary relief on the way down.
However, the sudden drop comes after months of stable price growth, which saw Bitcoin rose from below $6,000 at the start of the year to above $10,000 by late February.
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Chief Executive Officer, BitMEX, an exchange registered in Seychelles, Arthur Hayes thinks that the likely bottom for Bitcoin lies at around $6,000. As the flagship token suffered from the spread of the coronavirus, altcoins took a more severe hit with heavy losses seen across the board.
The latest crash appears to dispel this narrative, as it coincided with the sharpest rise in coronavirus-related deaths since the outbreak began.
Bitcoin bearish party seems to be utterly unstoppable. The selling pressure has been unrelenting on Thursday and could last throughout the day’s trading sessions. Data by CoinMarketCap shows that the market cap lost over $17 billion from the $223 billion recorded on Wednesday to $335 billion at the time of writing.
The reported trading volume is, however, on the rise, from $136 billion to $144 billion in the same period. Intriguingly, Bitcoin dominance has increased from 64% to 65.6%, to show that altcoins led by Ethereum have taken a huge plunge.
On Twitter, CEO, Invest Diva, Kiana Danial, explained that the current development witnessed in the industry went contrary to the general belief of the market. According to him, the market is usually insulated from global threats like coronavirus.
He said, “What happened have left many disappointed, as the digital currency has not been acting as the ‘safe haven’ it promised to be”.
The dramatic loss in value mirrored the drop in stocks as well as crude oil, with the main markets reacting to further bad news about the coronavirus epidemic. In addition, global uncertainty suggests investors’ desire to close positions in risky assets such as cryptocurrency.
Denis Vinokourov, Head of Research for London-based digital asset firm, Bequant, stated on Forbes Magazine that the crypto market had declined “sharply” in the last 24 hours, with bitcoin falling more than 20% in an environment characterized with worries about coronavirus.
Another factor is the U.S. President Donald Trump’s latest travel restrictions and panic-driven selling witnessed in the market. He noted that the desire of investors to sell off their holdings triggered “a liquidity crunch as the cost of capital spiked up across crypto exchanges.”
In addition, President Trump, on March 11, banned travel for most of Europe to the United States and the equities markets reacted with further lows. These drastic measures might have resulted in steep losses that leave the traders in the cryptocurrencies markets clueless of what will happen next.
Furthermore, from a short term view, the impact of the global economy is very indecisive but bitcoin is currently trading like a risk on the asset. Despite having a negative correlation earlier, the cryptocurrency market may continue to fall in tandem with the global equities market and other leading assets apart from Gold.
However, we still believe in the long term fundamentals of bitcoin as an asset. At the moment, not many large financial institutions are investing in bitcoin or crypto assets, However, when there is regulatory and settlement risk, this will change. Once that happens, bitcoin will be on a par or overtake gold as the safe-haven asset.