Covid-19 has had many side effects. Some foreseeable, some unexpected. From smaller, but still vital issues such as running out of toilet paper, to bigger changes in the society – coronavirus is definitely impacting our habits and our economy.
All eyes in finance have been on the fluctuating asset prices and stock markets. Hand in hand, coronavirus together with OPEC and Sino-US tensions are changing the financial landscape. Predictions are difficult, market corrections inevitable. If we bear in mind the words of Albert Einstein that ‘in the midst of every crisis, lies great opportunity’, the current situation could mark the starting point of some very interesting new trends for investors.
Even if you are not (yet) an investor or have not (yet) entered the cryptocurrency world, it is worth noting that Bitcoin (BTC) might just be the next big deal to take into account. Let’s first have a look at this virtual asset’s track record, by travelling back in time to discover Bitcoin’s fascinating past. Then we’ll look at how analysts are finding correlations between the token and the traditional asset classes.
Even though Bitcoin’s history is not too long compared to regular currency, its past does contain several interesting moments.
In the early days, cryptocurrencies traded for next to nothing. Starting from the very beginning, we can see in the highlights of Bitcoin’s history that at its launch it was literally worth $0. The first transfer of BTC was made in January 2009 by its anonymous creator, Satoshi Nakamoto, and it was worth 0 BTC. That, of course, was just the prelude.
The first real transaction where BTC was sold for fiat took place in October the same year. A Finnish developer called Martti Malmi was able to sell 5,050 BTC and received $5.02 in exchange by Paypal.
However, what everybody recalls and talks about is the case of the most expensive pizza in history. It is one of the most famous moments in the token’s transactions track record and it truly represents the meteoric rise of its price over the years.
If you know the pizza story already, you can skip this paragraph and jump to the next one. Otherwise, continue reading here. On May 22, 2010, a Hungarian developer called Laszlo Hanyecz, got really hungry and turned to the Bitcoin forum for help. He asked if there was anyone willing to order him a couple of pizzas and he promised to give them 10,000 BTC in exchange. A user from the UK responded, paying the $25 required for the pizza delivery. That user from the UK got more than compensated for helping out a fellow comrade. Just a year later, as the price of BTC had soared considerably, those two pizzas were basically worth €35,000. Today, we are talking about a couple of millions per pizza.
Indeed, if we look at the Bitcoin price index, the king of crypto has earned its name. From just a couple of dollars, we are now talking about thousands and tens of thousands of dollars. It is a solid asset worth to be taken into account.
There is no arguing with the fact that Bitcoin is the largest cryptocurrency by market capitalization. The same goes to its user base, popularity or the amount of data stored on its blockchain.
Even though the digital token is meant to be uncorrelated from stock markets, more and more analysts are paying attention to the fact that its value seems to have an ever stronger and stronger relation with traditional equities and asset classes, such as gold.
One can argue whether this correlation is real or whether stocks are an indicator of BTC value or vice versa, as Forbes has pointed out. Still, it does seem that the fluctuations are showing an increasingly conjoined development. In correlation, S&P 500 started growing since the coronavirus outbreak started and hit an all-time-highs this summer and according to analysts it is a sign that Bitcoin as an asset class is maturing. Volatility seems to be reducing as well, therefore, why not consider the possibility that this correlation can be something that’s here to stay?
Relationship with gold prices has been in the spotlight as well. Even though there were reports that, after the positive spring trend, BTC’s correlation with gold was weakening in June, the tables turned again. The current situation in September 2020 can very well be defined by saying that ‘Bitcoin is now more closely tied to safe haven gold than ever’.
Those recent trends of Bitcoin showing strong correlation with gold and stock markets are a sign that the cryptocurrency is more resilient and more attractive than ever. Those reconsidering their investment strategies and including (more) BTC in their portfolio are most likely the ones hitting the nail on the head.
With Bitcoin’s remarkable success, even some of the most ardent critics of the cryptocurrency have started to retract their opinions.
One such example is the American stock broker and celebrity Peter Schiff that recently had to admit defeat. He had predicted in July that Bitcoin would soon crash, whereas gold would continue rising. But this didn’t happen. As already highlighted earlier, the BTC-gold correlation is stronger than ever.
Retracting unsubstantiated claims about Bitcoin is nothing new. A good example from a couple of years ago is the case of Jamie Dimon, JPMorgan’s chief executive and an ardent critic of cryptocurrency. In September 2017, he had threatened to sack any company’s workers he found trading with digital tokens, calling the virtual assets a fraud. Before that he had compared Bitcoin with the well-known 17th century speculation case of the dutch tulips, saying that cryptocurrency was even worse. It seems, however, that he realized there is no point swimming against the current.
Here to stay
To sum up, it is safe to say that Bitcoin is a strong and credible asset, bringing fresh impetus to the investment world. Just as with any investment, prices can still be volatile and difficult to predict, but as time passes, we gather more data and have more experience in the subject. New investment strategies can be worked out and Bitcoin will no doubt be a serious player to consider in those strategies.