Bitcoin Is ‘Trading’ Like a Risk-On Asset But Gold’s Also Feeling the Selling Pressure
- Bitcoin, oil, overseas equities, Treasury yields plunging
- US President Donald Trump promises fell short of what investors were hoping
- Gold also feeling the pinch from the fall in financial markets
Bitcoin started the day at a deeply red note, tanking to $5,713, a level last seen in May 2019. Overall the crypto market lost more than $50 billion, as altcoins followed bitcoin down.
$BTC low today of $5,705 is a 28.25% drop from yesterday’s close of $7,952.
Largest single day drop since December 22, 2017.@MessariCrypto
— Ceteris Paribus (@ceterispar1bus) March 12, 2020
The rout deepened on Thursday for the stock market as well as S&P 500 opened the market at 6.6% losses and the Dow Jones Industrial Average plunged 1,700 points.
CME Group meanwhile is closing its Chicago trading floor on Friday “at the close of business,” as a precaution due to the coronavirus.
Coronavirus also led the National Basketball Association to suspend its season indefinitely after Utah Jazz players tested positive for the new virus. Academy Award-winning actor Tom Hanks and his wife Rita Wilson also tested positive for the coronavirus.
Investors’ expectations not met
From bitcoin, oil, overseas equities to Treasury yields everything plunged today after the World Health Organization declared Coronavirus a “pandemic”. Coronavirus (Covid-19) has infected 126,000 people globally while the US death toll was at 38 early Thursday with over 1,310 confirmed cases.
On Wednesday, US President Donald Trump restricted travel from Europe to the US for 30 days starting Friday. Trump pledged to provide financial aid and promised liquidity and capital but offered few details.
“Donald Trump's public address fell short of what investors were hoping for,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Today, European Central Bank decided not to cut interest rates despite the market expectations for a 10 basis point cut to stimulate the euro economy amid fears that a recession is about to hit the region. Both the Bank of England and the Federal Reserve cut rates over the last week.
Though the rates weren’t cut, the central bank did expand its asset purchase program by 120 billion euros ($135 billion) and announced measures to support bank lending.
Investors looking to de-risk
Gold, on the other hand, rose on worries about the economic impact of the coronavirus. Spot gold rose 0.5% to $1,642.46 per ounce, but down from the 7-year high $1,702 hit on Monday.
However, on the flip side, traders are selling gold to fund margin calls which are capping the yellow metal’s gains. Vandana Bharti, assistant vice-president of commodity research at SMC Comtrade said,
“Gold is now feeling the pinch from the fall in financial markets and travel ban. So, investors will keep money out of the markets for some time or book profits from the high levels, because of which we’ve seen some selling pressure in gold.”
Bitcoin meanwhile continues to follow the stock market which indicates the cryptocurrency is a risk-on asset.
“Bitcoin is trading like a risk-on asset. Not a safe haven, but the exact opposite,” said economist and trader Alex Kruger. However, the trader explained that the flagship cryptocurrency is trading like a risk-on asset and not being one as “investors are now looking to de-risk.”
Equity markets nose diving as well. USA again halted and -10%, Europe also -9%.
Gold & Silver also dropping.
Cash is the safe haven. $BTC
— Crypto Michaël (@CryptoMichNL) March 12, 2020
However, Gabor Gurbacs, a digital asset strategist at VanEck maintains that both bitcoin and bullion are “safe-haven competitors against negative yielding government debt.”
The recently turned negative-yielding government bonds are relatively new, and “the next decade may redefine fundamental investment axioms about safe-haven assets.”