- Bitcoin price surges to $9,150 but is reacting to Coronavirus as a risk-off like gold or is it a risk-on asset
- Iran was the “game-changer,” and Bitcoin’s reaction to Iran “extremely bullish” – economist and trader Alex Kruger
Gold was one of the few investments climbing higher on Monday as worries over the deadly Coronavirus outbreak led to a slump in the stock market.
The bullion is trading at the highest level since 2013 at $1,600 an ounce while Dow was down nearly 350 points. On Monday, China’s largest newspaper People’s Daily stated in a tweet,
– Thailand: 8
– Japan: 4
– South Korea: 4
– U.S.: 5
– Vietnam: 2
– Singapore: 5
– Malaysia: 4
– Nepal: 1
– France: 3
– Australia: 5
— People's Daily, China (@PDChina) January 28, 2020
When investors are afraid, gold does well and now experts are wondering if gold could top $2,000 in the near future. The yellow metal hit its all-time high at just above $1,900 in 2011 amidst the European debt crisis.
Apart from precious metals, Bitcoin is another asset that kicked off the week on a high note. Bitcoin yesterday went past $9,100 and is currently trading at $9,082 with 24 hours gains of 4.24% as per Coincodex while managing the daily trading volume of over $1.2 billion.
Is Bitcoin also reacting to Coronavirus as a risk-off like gold or is it a risk-on asset? Economist and trader Alex Kruger dived in deep to explore the correlation or the lack of it.
1/ Bitcoin vs the Coronavirus
A look at reaction times and correlations to explore if bitcoin may be trading like a risk-on asset (such as stocks) or a risk-off asset (such as gold or bonds). pic.twitter.com/hVnQ4qM1ml
— Alex Krüger (@krugermacro) January 28, 2020
Bitcoin reacting to Coronavirus or doing its own thing?
In the Asian market, the Coronavirus sell-off started last week on Tuesday and Monday at 20:00 EST sharp across the world. Meanwhile, the first bitcoin sell-off was already going on a day and a half earlier. And because stock traders are faster and better informed than crypto traders, bitcoin traders can’t front-run the crash.
Bitcoin, in fact, did not even “flinch,” when the first coronavirus sell-off started, notes Kruger. This means, the digital asset clearly didn’t react to the first panic wave. During the 2nd panic wave on the 22nd when China stocks were sold off again, this time Bitcoin indeed moved lower.
It was on Friday when stocks crashed and Bitcoin recorded gains on Friday that the narrative flipped from ‘”bitcoin positively correlated with stocks” to “bitcoin negatively correlated with stocks”.’ The fact that Bitcoin didn’t react during the first time and sold-off during the second but moved during the third, looks like “Bitcoin did its own thing.”
As a matter of fact, Bitcoin’s 5% move up wasn’t anything different. Trader Josh Rager also echoed similar sentiments when he said,
“BTC has made no abnormal price changes during the recent panic waves though stocks in China have taken a significant hit. BTC is still ranging between $8k to $9200.”
But Iran was the “Game Changer”
However, Kruger acknowledges that Bitcoin did move on the Iran events, without a doubt. Jan. 7th move was actually a “game-changer,” he said. But it also doesn’t mean that the flagship cryptocurrencies should be expected to move every time stocks pump or dump.
Comparing the price leads of bitcoin and stocks leads to spurious conclusions meaning no price correlations. The correlation of returns between risk assets and bitcoin, he observes has been historically “unstable and hovered around zero.”
What makes US Treasuries and gold risk-off assets are their negative correlation with stocks “increases during panics.” Although bitcoin-stock correlation also increases during panics, it is moderately negative.
Moreover, stock-gold has a negative correlation in all time frames unlike bitcoin-stocks that have been consistently close to zero in terms of hourly returns, Kruger points out.
But how Bitcoin traded during the Iran events, that was a “game changer,” of whose Kruger says time will be the judge. He found Bitcoin’s reaction to Iran “extremely bullish.” He concludes,
“Bitcoin is in the process of becoming a macro asset as the market matures. In the meantime bitcoin is also a hedge against the TAIL-RISK of fiat systems collapsing, i.e. a put option on central banks without expiry.”