The scale of the coronavirus outbreak has become the dominant factor in influencing financial mechanisms in recent months. From derailing the growth of domestic economies to causing key indices to crash, the COVID-19 pandemic has had a significant impact on the financial world. While many markets have lost their appeal to investors, Bitcoin has remained bullish at a time of widespread economic decline.
The S&P 500 is commonly perceived as the benchmark index for the state of the global economy, so its volatility during the coronavirus pandemic is indicative of the scale of this financial crisis. Seismic events like the 1929 depression and the 2007 recession both caused an approximate 5% decline in the index during the first 20 days of trading. The coronavirus pandemic instigated a fall of around 30% in that same bracket.
This reveals just how extraordinary these market conditions are for the modern financial system. With no precedents, traders have been required to adapt their strategies and find ways to mitigate market crashes. For example, CFD trading is well-suited to these conditions, as traders can speculate on an asset’s decline in value. This approach compares favourably to traditional share investments, with few stocks currently demonstrating any potential for upward mobility.
With a definitive end date on this crisis a complete impossibility, traders will have to continue to tailor their strategy for these difficult times. Unprecedented conditions can encourage investors to come up with new approaches. Going short on shares is one such approach, while the dramatic decline of traditional financial mechanisms has tempted traders to consider the potential of Bitcoin.
Forbes has suggested that this period will be remembered as the ‘Bitcoin pandemic’, justified by unprecedented crypto trading volumes and the asset’s lack of correlation with stock markets. There is a sense that Bitcoin could usurp gold as the new safe-haven investment in an increasingly digitised world.
Here’s how events have unfolded in March and April, comparing the value of Bitcoin to the fluctuations of the S&P 500.
Bitcoin rose by 7% from its price at the start of March, with $9126.64 its highest value across these two months. The S&P shed 4% in the same period.
In the ten days that followed, Bitcoin plunged by 46% down to $4944.70. The S&P held up relatively strongly but nevertheless fell by around 20%.
This day provided the clearest indication of Bitcoin’s lack of correlation with stock markets. As Bitcoin rose by 31% from its nadir the previous week, the S&P 500 tumbled by another 5%.
Bitcoin posted 13% growth in the opening week of April, with the S&P 500 largely keeping pace with an 11% rise.
Both Bitcoin and the S&P 500 remained steady throughout April, having regained a semblance of stability following that March crash.
It is that mid-March recovery that will have investors confident in Bitcoin as a viable long-term option. The S&P 500 still looks susceptible to future falls as the pandemic wreaks havoc on traditional economic systems, which is why traders may be inclined to adopt short positions. Because Bitcoin is less exposed to those systems, there may be a greater chance of further rises in value beyond April.
Of course, trends could change rapidly as the pandemic develops. As its plummet in value exemplified, Bitcoin is not immune to wider market conditions. However, the impact of the coronavirus pandemic has left national economies and once-reliable equities with no real prospect of short-term or mid-term growth. As Bitcoin’s subsequent rebound has shown, cryptocurrencies may be able to outperform