So far, this hasn’t been the most successful year for the stock market. In March, it lost significant value, the volatility hit an unprecedented mark and staggering sell-offs completed the picture. According to the How to Buy Shares report, for the London Stock Exchange the situation got even worse during the crisis as it continued losing its trading companies. And although the markets already started reclaiming their early losses, it is still too early to talk about a full recovery.
Every time a big market crash occurs investors start wondering which asset is the best store of value. Precious metals like gold or silver have become a common way to store value. In fact, the price of gold has often skyrocketed when markets have gone through some rough times.
Recently, people started giving more and more attention to cryptocurrency as a new strategic asset. It is common knowledge that the key to investing and storing value lays in diversification. When one of the assets in your investment portfolio declines, another one should stay stable. Digital currencies are not too sensitive to the external market turmoil and often remain stable when other assets drop. That’s why it doesn’t come as a surprise that more people are turning to cryptocurrency striving to advance their investment strategy.
Bitcoin in Times of Crisis
There have been several occasions when Bitcoin acted as a go-to asset when economies of certain countries have been going through tough times. For instance, in 2013 when the Cyprus banking system became a matter of concern, the price of BTC immediately reacted and almost doubled within a month. A similar thing happened in June 2015 after the situation with the national debt of Greece. Once it became the topic of intense discussions, the BTC price skyrocketed.
Eventually, Blockchain adverts started comparing Bitcoin to gold and predicting it would soon replace the precious metal in regards to storing value and thanks to the technology behind it. Then what about the recent crypto market that happened in 2020? When the stock market crashed in March, Bitcoin fell even lower, losing almost two-thirds of its value. Most likely this happened due to panic sales and wasn’t subject to an external shock. It’s also probably why it managed to recover soon enough.
If you look into correlations charts, you’ll see that Bitcoin has never been correlated to the stock market. Although sometimes it does react to major geopolitical events, in general, the cryptocurrency market is way too wayward and follows its own pattern.
The Crypto Way
Frankly speaking, when a crisis hits, no asset is safe from panic sales. When investors need cash they will sell anything as fast as they can. The same thing has happened to gold and stocks before, and now it’s happening to cryptocurrency too.
One of the reasons why investors aren’t rushing into putting up all their money in crypto is that this asset is relatively new. A lot of people have no knowledge or proper understanding of Bitcoin and are hesitant about investing in a new type of asset notorious for its volatility. After all, Bitcoin is still a risky asset. And yet, no risk no gain they say.
Another Kind of Value
It would be incorrect to assume that Bitcoin may one day replace gold as a strategic asset. In fact, it doesn’t have to. Gold doesn’t have a wide functionality besides storing value and you cannot buy things with it. Bitcoin and other newer types of crypto have one undeniable quality – an efficient way of transmitting value. The world has already started the big transition to the digital way of organizing finance and it’s only a matter of time before cash disappears.
As soon as Bitcoin becomes more wide-spread and people start using it to pay for goods and services, its price will level out and volatility will settle. There is a positive trend that promises big changes are going to come in the near future.