In 2020, Bitcoin has been following stock markets religiously, so much so that their correlation went to a new high. But now, the flagship cryptocurrency seems to be making a shift from that.
Talking about this, the CEO of Bitcoin custodian BitGo, Mike Belshe explained how the first wave we saw was a lot of flight to safety. While in the crypto space, the big believers were of the opinion that bitcoin could be an uncorrelated asset, the first thing we saw when the market started to fall was stocks and Bitcoin falling together. However, according to Belshe, it’s a good thing because,
“that's an indicator that Bitcoin is not a hedge against the stock market performing poorly, Bitcoin is not a hedge against coronavirus, bitcoin is a hedge against the US dollar and inflation.”
Not fully out of the woods yet
What happened in the first wave was that markets corrected and crypto corrected too. In fact, crypto participates pretty well because it is one of the most liquid assets, which means it’s easy to liquefy. Although bitcoin doesn't have the depth of liquidity like other asset classes it can be easily converted to cash.
In the shortage of liquidity, central banks around the globe are injecting billions of dollars in the markets which, according to Belshe, could help crypto as well.
“(Industry) they're looking for cash anywhere they can get it and that flight to safety happens. Now in the response, the political systems around the world are all doing the only thing that they know how to do which is to print more money. Whether you're in the US or whether you're abroad we're seeing that in droves.”
However, that currency hasn't actually started to flow quiet yet so markets are just anticipating what's going to happen. That will be where we’ll see a lift-off from Bitcoin but “it's not fully out of the woods yet.” Belshe said,
“So, in the next two to four weeks you know let's see what happens as that money gets circulated, that freshly printed supply.
I think that we will see some change for crypto assets and we'll see if it's diversity correlates from equities.”
As we reported, this price crash resulted in exchanges experiencing record trading volume and signups from the retails. During this time, the activity on regulated exchanges like CME and Bakkt that cater to institutions took a hit.
CME & Bakkt both with strong showings yesterday, largest volume since Mar 16th. pic.twitter.com/flQLsAqQNM
— skew (@skewdotcom) April 3, 2020
According to Belshe, what is holding back institutions is a “little bit of uncertainty as to what the government's going to do.”
Regulators have more power today than they've probably had any time in the last ten years, he said. As such,
“there's some uncertainty as to what's going to happen with crypto markets in terms of regulators saying hey we're gonna try to protect our currency that we're inflating even though these crypto assets might be a better safer place to be. I think that's a losing battle in the end but it could have temporary impacts.”