Messari: When the stock market falls, it also falls. Which risk does Bitcoin avoid?

Last weekend, new crown virus outbreaks broke out in Italy, Iran and South Korea, and the global market fell into chaos. Investors began to succumb to the economic impact of this global epidemic.

Global stock markets have experienced their worst week since the 2008 global financial crisis. Treasury yields have fallen to record lows. Traditional safe-haven currencies such as the Japanese yen and Swiss franc have also been sought after, as investors seek to protect themselves from market turmoil, and almost all other currencies are closed in the process.

(Weekly rate of return for each financial product: February 24-28)

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Bitcoin has not been spared, and this week it has fallen more than 10% with risky assets and even gold. However, although Bitcoin did fall with risk assets last week, Bitcoin's status as a safe-haven asset has not been invalidated as a result.

Bitcoin cannot hedge the recession. Similar to gold held for speculative purposes in the short term, the liquidity tightening we experienced last week could cause investors to sell bitcoin to meet the liquidity restrictions of other portfolios. Under severe market pressure, one should not expect Bitcoin to reliably maintain its value, nor should its performance last week be surprising. During the 2008 financial crisis, gold did just that.

(Insufficient liquidity in 2008 caused gold to fall with risky assets in the short term)

Instead, Bitcoin is a hedge against fiat currencies. Bitcoin cannot prevent a recession, but it can prevent mismanagement of the fiat currency system. Better dynamic tracking is not how bitcoin performed when the market fell due to fear of the new crown virus, but how bitcoin performed when the central bank took stimulus measures to mitigate the economic impact of the epidemic.

Although Bitcoin has so far failed to respond to central bank stimulus measures, the forthcoming central bank stimulus measures could make a big difference. In response to the new crown virus, the G7 appears to be preparing to take its first coordinated action since 2011. Although many economists believe that monetary policy cannot mitigate the potential impact of the new crown virus on the economy, the market currently expects the Fed to cut interest rates by 50 basis points at its March 18 meeting, which will be the largest meeting since the financial crisis. If the Fed decides to speed up, interest rate cuts could come sooner.

(The market expects the Fed to cut interest rates by 50 points)

Bitcoin is too small and insignificant to respond realistically to major past monetary events such as the third round of quantitative easing (QE3) in 2012. During QE3, Bitcoin was only traded for one year and the price was just over $ 10.

Bitcoin with a market capitalization of $ 166 billion may still not be enough for investors to protect themselves. But maybe this time is different. Unlike previous monetary stimulus measures, the measures to be introduced may be larger and more counter-productive than those since QE3. Institutional infrastructure has been built, and Bitcoin may be ready.

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