Where will the safe-haven funds go after Black Monday?

Source: Finance and Economics · Chain Finance

Author: Ren Qing

Guide: Crude oil plummeted 30%, U.S. stocks triggered a second meltdown in history, gold broke $ 1,700, 10-year U.S. Treasury yield fell below 0.4% and hit a record low again. After "Black Monday", where did the safe-haven funds go? ? Can Bitcoin Become a New Safe-Haven Asset?

March 9, 2020 is a day that can be loaded into the history of finance.

In 1987, the US stock market experienced a "Black Monday", after which it introduced a stock index fuse mechanism. For more than three decades, the US stock market actually triggered a blowout only once on October 27, 1997. The Dow Jones Industrial Index plunged 7.18%, the largest single-day drop since 1915.

Under the impact of the spread of the new crown pneumonia epidemic, the US election and the plunge in oil prices, "Black Monday" was staged again.

On March 9th, Eastern time, the plunge of US stocks triggered a second meltdown in history, and the global stock market was battered again. The Dow fell by 2,000 points in a single day. At present, the three major US indexes are less than 1% away from a technical bear market. The three major US stock index futures have entered a technical bear market.

The European Stoxx 600 Index fell more than 7%, the lowest since January 2019. The Japanese stock market once fell to 6%, and eventually closed down 5.1% throughout the day. The Singapore stock market also recorded a record decline, falling more than 6%.

But the most dangerous thing is not the stock market, but the crude oil market. Crude oil plummeted by more than 31.5% for two consecutive days, and international oil prices fell below $ 30 / barrel for a time, second only to the decline in the Gulf War in 1991, the largest decline in nearly 30 years.

The digital currency market also suffered a plunge. Bitcoin, which is regarded as "digital gold," fell below the two important nodes of US $ 8,000 and US $ 7,800 in succession, and fell to US $ 7680 at the lowest, a drop of more than 10% in 24 hours. On March 8th and 9th, the four major exchanges (OKEx, Huobi, Binance, BitMEX) closed positions of 442 million and 373 million, respectively, and 682 million in 24 hours.

Why have global assets been brutally washed?

"Most institutional investors believe that the current plunge in U.S. stocks is mainly a reflection of multiple risk factors such as the New Crown virus, the oil price war, and the U.S. election. In the context of market panic, plus many risk assessment funds due to market fluctuation The rising rate leads to automatic lightening, which has exacerbated the market's plunge. "Chen Kaifeng, chief economist at HSBC Financial, said in an interview with Lujiazui.

Zheng Di, CEO of the Dots institutional investor community, believes that before this wave of decline, global liquidity was not as good as expected by the market. There is actually not so much money in the market, especially after the redemption, there is a lot of leverage in the market, and some liquidity tensions appear.

"The total market value of U.S. stocks has more than doubled GDP, so it is in a bubble stage, so the high-level shocks in the bubble stage are relatively normal," said Ren Heyi, an analyst at the Blockchain Research Institute of Guosheng Securities.

Panic intensifies, what kind of assets can be hedged?

Behind the slump in the global financial market, the demand for hedging continued to heat up, market funds accelerated selling, escaping from stocks and commodity futures markets, and accelerated the flow to hedging assets such as gold and government bonds.

On the afternoon of the 9th, spot gold hit its highest price since December 2012, at $ 1703.39 per ounce. After rushing higher, the spot gold still fluctuated near $ 1680.

"After a sharp rise in the price of gold, there will be a short-term rapid profit sell-off. The main reason is not because gold has lost its momentum, but because the short-term stock market and other assets have caused a shortage of funds. Selling profitable assets to obtain cash to make up for the lack of funds . "Some analysts pointed out.

Some analysts expect gold to continue to climb. UBS's wealth management department predicts that prices may rise to $ 1,800 in a few weeks, while Citigroup expects gold prices to surge to $ 2,000 by the end of 2021.

Safe-haven funds are also continuing to pour into safer bond markets, especially mid- and long-term government bonds. As a result, the prices of national bonds have soared, and the yields of national bonds have continued to reach historical lows.

On the afternoon of March 9, the 10-year U.S. Treasury bonds once fell below the 0.4% mark and once fell to 0.318%. This was the first time in history, and the daily decline was close to 40%. The 30-year U.S. Treasury bonds also hit a record low. Japan's 10-year government bond yield fell to -0.20%.

Can Bitcoin be a safe-haven asset?

The industry analysis shows that after the short-term risk aversion, some funds will continue to be transferred to seek the best balance between risk and return. So where will the funds flow in the future?

In the blockchain industry, Bitcoin is often compared to "digital gold." Because of its scarcity characteristics similar to gold, it is believed that Bitcoin has the characteristics of value storage and can be used as a safe-haven asset. Before the economic crisis in Venezuela, Bitcoin also Once the asset of choice for people in these countries.

Coinbase CEO Brian Armstrong publicly stated that "the slowdown in the global market economy will force the central bank to take more extreme market stimulus measures in the coming months, which is likely to benefit crypto assets. Increasingly aggressive policies will allow fiat currencies in various countries The sharp devaluation, while harming the interests of savers, also makes scarce assets like Bitcoin more attractive. "

Digital currency group DCG (Digital Currency Group) specifically established a subsidiary Grayscale Investment (hereinafter referred to as grayscale) in 2013, and its managing director Michael Sonnenshein said in an earlier interview, “Bitcoin It is now a safe haven, a means of storing value. When the market is in chaos, investors can really think about the role that gold and bonds played in the past. "

Grayscale also found in a study in 2019 that when the mainstream financial industry is facing an economic crisis, the bitcoin market benefits the most. For example, during the Brexit fears from June 2016 to December 2016, Bitcoin prices rose by 7.1%. The euro and pound fell 2.4% and 8.1% respectively during the same period. At the same time, the Morgan Stanley Capital International Global Price Index fell 4.9%.

Grayscale concluded in the report: "Although bitcoin is still in its very early stages as an investable asset, we have found evidence that bitcoin can be used in a global liquidity crisis, especially those that lead to subsequent currency Evidence that acts as a hedging tool in a crisis of devaluation. "

However, the recent global financial assets have plummeted. Bitcoin has not shown the same trend as gold, but has gone out of the decline channel. Since Bitcoin hit a new high for this year on February 13, 2020, prices have started to fall. In half a month, it fell from a maximum of 10,500 to a minimum of 7,800, a drop of more than 20%.

Can Bitcoin considered "digital gold" be a safe haven?

OKEx senior analyst William said in an interview with the interface, "This bitcoin plunge is a common performance of the market entering a downward trend after the price of bitcoin broke through the support line at the end of February. The rise of bitcoin in January was based on the market's" Bitcoin The expectation of "halving", "because historically, the first two rounds of halving Bitcoin have doubled the price of Bitcoin, so the market is generally optimistic about the halving. "

William reminded that currently Bitcoin has entered the downward channel. If Bitcoin investors still invest in Bitcoin with the expectation that "halving the market price will increase the price of Bitcoin", these investors will face greater market risks in the future. .

Regarding the statement that "Bitcoin is a safe-haven asset", William believes that this view is actually wrong because the current market size of Bitcoin is too small to serve as a tool for hedging large amounts of funds in traditional markets. Secondly, Bitcoin's volatility is too large, it has tripled in the first half of 2019, and it has fallen by nearly 50% in the second half of the year. "With such a big fluctuation, no professional investment team will use it as a hedging tool."

Coindesk columnist Jill Carlson stated: "It is clear that Bitcoin has performed more like a risky asset than a safe-haven asset in the near future."

Dr. Doom Nouriel Roubini also tweeted that "another piece of evidence shows that during periods of risk aversion, Bitcoin is not a good hedging tool. During risk aversion, it actually fell more than risky assets."

" From the perspective of hedging properties , Bitcoin is still inadequate compared to gold . Due to the insufficient market depth and lack of consensus, Bitcoin is now more of a risk asset that is highly related to liquidity , rather than hedging. Assets. But now it is a risk asset, does not mean that it will never be a safe-haven asset in the future . "Zheng Di said.

He believes that Bitcoin is still a relatively niche asset, saying that it is a bit early in digital gold, but he is the one who has gone the farthest and the most promising on the road to becoming digital gold.