Due to its relative youth, bitcoin has always been one of the hardest assets to predict when it comes to its response to global events such as Coronavirus.
People are always speculating, but it’s very rare that someone consistently makes accurate assessments and predictions as to where it’ll go.
There are many examples to back this statement up, but let’s examine some of the recent developments that we all witnessed. It was back in January, during the tensions between the US and Iran that we got to see something curious. The price of Bitcoin, almost directly proportional to how the tensions developed, kept rising.
The biggest spike happened right after the US forces killed the Iranian general Qasem Soleimani. It even got to a point where there were some rumours that Bitcoin reached $24,000 on LocalBitcoins exchanges. The sharp increase in price prompted some of the financial analysts to claim that Bitcoin is a “safe haven” asset like gold.
It won’t come to anyone as a surprise, that these numbers were not indicative of actual reality. The reason for such a high price was a simple misunderstanding due to the country’s exchange rate differences.
The Iran-based LocalBitcoins sellers were setting these prices based on the official exchange rate that was set by Iran’s central bank. However, this rate is only used by the government itself, and a handful of businesses. For everybody else, international rates are used.
Bitcoin’s Harsher Reality facing Coronavirus
In place of this overblown perception of good performance, Bitcoin has presented us with a completely different turn of events these last few weeks. Coronavirus has been spreading rapidly throughout the world. Without going into too much detail, with over 95,000 confirmed infected and over 3,300 deaths, panic has overtaken the world, and it has affected the global financial markets. In February, the Dow Jones has dropped by around 1,200 points, which is the historically largest reduction.
Instead of surging ahead as it seemingly did in the public’s perception during the US-Iran tensions, bitcoin has dropped significantly. Right at the end of February, it had dropped by nearly 10%.
It didn’t take too long for the financial experts to speak out on the matter. Many of them suggested that Bitcoin wasn’t, at all, a “safe haven” that many people thought it was. It has shown to be still quite a volatile asset class.
Sure, in some rare and specific cases and economic events, Bitcoin can seem like a safe haven asset; even with global events. However, for a global event like the Coronavirus, which comes with an extra dose of tension and mass panic around the world, sometimes it’s too hard to overcome.
Right at the beginning of March, bitcoin dropped by around 6%, below its $9,000 psychological threshold, which it has since then regained back, as of this writing. One thing is clear though – we don’t have the luxury of calling it a “safe haven” asset, with its very high volatility and constant ups and downs.