Bitcoin Just Failed The Coronavirus Test

Bitcoin Just Failed The Coronavirus Test

Just of recent, Bitcoin took investors on a roller-coaster ride, and despite the fact that its value has risen dramatically since its inception more than a decade ago, it has had plenty of huge downdrafts along the way. Note that the latest plunge in Bitcoin, though, comes at a time when many would have thought the cryptocurrency would be most likely to soar: in the wake of the world pandemic COVID-19.

Thursday was a nightmare for Bitcoin investors as the Bitcoin price drastically dropped. In fact, we can say that Bitcoin suffered its worst one-day drop in years, drastically falling from $7,600 to 5,300. By Thursday night, the price of this popular cryptocurrency had approached $4,000. With the price of Bitcoin having been above $10,000 as recently as mid-February, many Bitcoin investors are asking the question to know why the token’s price failed to deliver on its promise as a safe-haven asset in times of turmoil in the traditional financial system.

How the Coronavirus infected the Bitcoin’s investment thesis

For the past years, cryptocurrency advocates have intensively argued that tokens are ideal safe havens from the uncertainties of the broader financial markets. With strict rules for releasing new tokens onto the market and a fixed supply, Bitcoin isn’t subject to the same manipulation that Central Banks and government entities can use with their fiat currencies. Looking at the past events that have caused strains on the financial markets, Bitcoin and other digital currencies have typically been subjected to a rise in price. Intensified moves like the Federal Reserve’s Injection of Liquidity into the credit markets on Thursday certainly seemed to be the kind of thing that would normally inspire Bitcoin investors to get more bullish.

In the same light, the Coronavirus-inspired plunge in Bitcoin prices seems anomalous. However, the knee-jerk explanation coming from many financial experts for Bitcoin’s plunge was that Cryptocurrencies had essentially lost their safe-haven status and were once again perceived as a risky asset. Behold, this is highly inconsistent with the basic investing thesis that many digital currency investors have in justifying their Bitcoin holdings, and if this happens to be true, it would potentially be a big blow to the idea that Bitcoin offers a safe alternative to fiat currencies and assets that are linked to these currencies.

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