The coronavirus pandemic has spread across the entire globe, and its effects have finally hit the global economy and financial markets hard. Naturally, such times have always sparked a reaction from investors. After watching their portfolios shrink faster by the day, the theme has been gold trading, as investors pursue safe–haven assets to at least cushion against massive losses, or at best, realise some gains in a depressed period.
Safe Haven Assets
Gold has traditionally been the primary safe haven; a go-to asset when uncertainties hit the market for prolonged periods. The current coronavirus pandemic is not just any other pandemic. The virus started in China, and after hitting Europe (especially Italy and Spain) hard, the bad news in recent weeks has now been streaming from the US. Already, the world’s super–power has reported more than 350,000 positive cases, with more than 10,000 deaths. The worst is yet to come, with optimistic predictions suggesting that a death toll of about 100,000 would be ‘optimistic’ news. Globally, positive cases have topped 1.3 million and there are no signs of a peak yet.
Unemployment Numbers
On the economic front, there has been more negative data hitting the wires. The US unemployment numbers are hitting 7 million, the worst since the 2008 global financial recession. In the Eurozone, the unemployment rate has touched 7.5%, the worst since Eurostat started reporting monthly rates at the turn of the millennium. It is important to note that unlike natural disasters,such as floods, disease pandemics can strike in repeated waves, in multiple locations, and can last for months on end. But can investors find a cure for their portfolios?
The Power of the Trading Portfolio
The coronavirus-inspired market downfall has practically hit every financial asset class. Gold has seen modest gains, with rallies curtailed by a strong US dollar (USD). Despite evidence of a slowing US economy, the greenback has maintained resilience during this period as investors back up the world’s reserve currency ahead of traditional safe–haven fiat currencies,such as the Japanese yen and the Swiss franc. With gold prices denominated in dollars, a strong rally faces some headwinds. But adventurous investors have also cast a glance towards cryptocurrencies and particularly Bitcoin – the digital Gold.
Cryptocurrencies Take Center Stage
The current events are the closest to what happened when Bitcoin launched during the 2008 global financial crisis, or even worse. Governments all around the world have instituted partial or full lockdowns that have effectively shut down economic activity. Open-ended stimulus packages have also been rolled out as governments seek to support economies and to stabilise the financial markets. All these are fundamental tailwinds for cryptocurrencies, which are not susceptible to inflationary pressures and other fiat limitations.
Beyond their qualities, cryptocurrencies have also proven to bevery functional during the current pandemic. Cryptocurrencies have emerged as vital tools for fundraising and charity purposes. Cryptocurrencies provide a cheaper, faster and efficient way to move funds around, which provides a much-needed solution during a crisis time. But can Bitcoin mirror the safe–haven qualities of gold and offer protection as well as an opportunity for investors?
Bitcoin
Already, Bitcoin has drifted higher from lows of just below $4,000 in February. This digital gold continues to be the de-facto directional cue provider in the cryptocurrency market. Crypto bulls are set to sustain bullish momentum as the US and other countries enter the worst stretch of the coronavirus pandemic. Bitcoin currently sits pretty above $7,000 and will likely receive further tailwinds as stimulus packages that debase fiat currencies are aggressively implemented. There are also indications that the foremost cryptocurrency is finally starting to trade like the ‘real’ Gold. The two assets have now recorded a correlation of 0.48 during the past few weeks, after averaging a correlation of 0.03 over the last decade. A value of 1 denotes perfect correlation. Cryptocurrencies have already evolved into digital stores of value, and the current crisis presents a unique opportunity for them to take the baton as the ultimate safe–haven treasures.
Final Words
It is a tough time in the world now as a disease provides a threat to humanity. Every facet of human living has changed; investing should as well. Cryptocurrencies have already posted huge gains during this crisis, and as the world is yet to make any breakthroughs in the fight against COVID-19, the ceiling is still so high for these digital assets that may be the only cure for your ailing portfolios.