What Does Bitcoin’s Performance Tell Us About It; Risk-on Asset or Store of Value
- The price of the world’s leading cryptocurrency is back to surging, extending its gains from Monday.
- On April 6th, BTC/USD was trading under $7,000 and today we jumped to $7,464, last seen in early March, just before the 40% drop in price.
Recently, Bitcoin jumped above a crucial level of resistance based on the DVAN Buying and Selling Pressure Gauge. As per this, a positive divergence has been triggered and a buy signal, a trend that played out in January ahead of BTC hitting $10,500. Richard Rosenblum, co-head of trading at GSR said,
“The potential for downward moves remains in these next two weeks, depending on what new health and economic data show. But the long-term case for crypto has been made stronger by the impacts of this pandemic.”
“As the dust settles, people will begin to look for a store of value.”
A Risk-on Asset or Store of Value?
Crypto is still in a risk-on mode but as coronavirus outbreaks have started to stabilize in some of the worst-affected countries, investors are moving back into them.
As such, the year-to-date gains have also turned green by 1.34%. However, these gains coincide with the stock markets that are signaling another green today. Gold meanwhile fell 0.4% to $1,653.80 an ounce. Trader Crypto Squeeze said,
“Bitcoin performs well when the world markets are performing well. The correlation is higher towards SPX than Gold. It's a risk-on asset. If you think there's no recession(6 months GDP down) then buy Bitcoin because it'll outperform. Otherwise, be patient and stay hedged.”
Crypto assets continue to be spasmodically correlated with stocks.
— Alex Krüger (@krugermacro) April 7, 2020
However, plotting S&P 500 in log charts shows that the losses suffered by the equities in 2020 are much more severe than the losses recorded by Bitcoin. According to the on-chain analyst, Willy Woo bitcoin is still exhibiting safe haven properties which,
“in part due to the nuances of Bitcoin production costs creating a floor in price, and partly due to it getting an uplift in price due to its adoption s-curve (other assets are at adoption saturation).”
And they told me Bitcoin was a risky volatile asset…
(Plotted in log charts so % gains/losses are proportional within each respective sparkline) pic.twitter.com/qxC1xF8cay
— Willy Woo (@woonomic) April 7, 2020
Woo further explained that, in portfolios, we get to amplify the G forces that were exposed to tolerate per asset as part of our allocation to that asset and “BTC is a better ride.”
Bitcoin will pass the test
We have been seeing how during this ongoing crisis, the Dow is down 20.53% YTD, Goldman Sachs minus 31.18%, and crude oil minus 57% in 2020 so far.
In a bull market, everything performs well, as we have seen in the crypto market, but bear markets reveal the inefficiencies and as Matt D'Souza, a hedge fund manager and CEO of crypto mining service Blockware Solutions states, “junk never comes back.”
And the fact that, despite the bitcoin price tanking, the hash rate/mining rigs continue to surge, is a good thing. D'Souza said,
“Bitcoin will survive because it has the strongest Network Effect in the Blockchain Ecosystem. Miners have more conviction in Bitcoin than Investment Funds and Hodlers.”
Just like gold, bitcoin had its shakeout and now seems to be stabilizing amidst the monetary stimulus. “This year marks a key test for Bitcoin’s transition toward a quasi-currency like gold, and we expect it to pass,” said Mike McGlone, an analyst at Bloomberg Intelligence.