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At the time of writing (March 12th, 2020, 13:30 GMT), Bitcoin has collapsed by over 20% in a matter of hours, smashing critical support levels and empowering the argument that cryptocurrencies ARE NOT the store of value/stock market hedge that everyone thought they would be.
Altcoin powerhouses Ethereum, Bitcoin Cash, Litecoin, and Tezos have also dropped by over 30%, and XRP has bled 23%.
With markets around the globe buckling under the pressure of COVID-19 and the impacted geopolitical circus shown by mainstream media, cryptocurrencies are also feeling the heat as all assets take a steep decline. Selling pressure on privately-owned assets, such as metals and cryptocurrencies, continues as investors attempt to make up devastating and unexpected losses.
Trump’s latest speech on the COVID-19 outbreak did little to reassure markets, and implementing a travel ban on flights from all of Europe except the U.K. only fanned the flames of despair. Ireland’s school closures and unexpected (but not so unexpected) rate cuts by multiple central banks are adding to the perfect storm for economic and social turmoil.
Triggering more fear in the markets, the WHO finally declared the COVID-19 outbreak as an official pandemic yesterday – guess it’s better late than never!
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Gold has recently had a bullish rally in recent months just like its rival, Bitcoin, but even precious metals have been knocked around as a result of economic turbulence. Silver is still yet to awaken from its slumber.
These knee-jerk reactions from cryptocurrencies during sharp drops in traditional markets are emphasizing the debate that the digital asset markets are actually correlated with major indices. Other debates are ensuing on social media that Bitcoin is not a store of value. To understand the situation, we need more data on cryptocurrencies during a recession. This scenario has not played out yet.
Cryptocurrencies are the innovative reaction to broken monetary policies – the same policies we are witnessing today that make markets so fragile.
In 11 years, Bitcoin and cryptocurrencies as a whole have literally outperformed and smashed every other asset class. Bitcoin itself has delivered an eye-watering 9,000,000% return to its investors, leaving any anti-Bitcoin figure speechless!
Can Cryptocurrencies Survive a Recession? Fundamentals Still Intact
As markets stabilize and more data becomes available, we will be able to derive greater insights into how cryptocurrencies perform during economic downturns, crisis events, and geopolitical uncertainty.
During the tensions with Iran at the start of 2020, Bitcoin’s price trended higher alongside traditional markets, which were also non-responsive by the prospect of WW3 breaking out.
Two months from now, Bitcoin’s inflation rate will drop to 1.8% and its new supply will drop by half. These could provide additional variables into how digital assets perform during economic downtrends.
Bitcoin’s underlying mining ecosystem is also holding strong despite global disruptions. For the time being, Bitcoin’s hash rate stands at approximately 110 EH/s.
This post is for educational purposes. All information used is referenced accordingly. This is not investment advice; please always do thorough research and only invest what you are willing to lose, especially in times of uncertainty.
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