Self-Motivation
David Goggins
Former Navy Seal
Career Development
Bryan Cranston
Actor
Critical Thinking
Liv Boeree
International Poker Champion
Emotional Intelligence
Amaryllis Fox
Former CIA Clandestine Operative
Management
Chris Hadfield
Retired Canadian Astronaut & Author
Learn
from the world's big
thinkers
Start Learning

3 things that happen to the cryptocurrency markets during times of economic uncertainty

Unfortunately, it's getting easier to predict what might happen to cryptocurrencies when the economy takes a nosedive.

Pexels
  • Born in the wake of the 2008 financial crisis, Bitcoin hasn't yet faced a downturn like we're starting to experience.
  • Based on the developments of recent weeks, some crypto market trends are starting to emerge.
  • Bitcoin's relationship to gold is strong, futures and options are losing their lure, and stablecoins are on the rise.

Although nobody knows yet what the outcome of the global coronavirus crisis will look like, there is one conclusion on which everyone seems to agree: The economic fallout is going to be significant. Last week, the U.S. government signed off on a $2 trillion relief bill, and governments around the world are printing money in an attempt to stave off a pending financial crisis.

No cryptocurrency has ever gone through a full economic cycle. Bitcoin was born from the depths of the 2008 global financial crisis. Famously, Bitcoin's genesis block contains the headline from The Times on the date that creator Satoshi Nakamoto mined the first ever Bitcoin: "Chancellor on brink of second bailout for banks."

So, until now, despite rampant speculation, it's been difficult to predict what might happen to cryptocurrencies when the economy takes a nosedive. However, the last couple of months, as the coronavirus has unfolded, have given us an idea of a few significant trends.

1. Bitcoin shows a higher correlation to gold

The idea of Bitcoin as "digital gold" has been around for a while. It's true that the two assets share some similarities: a price driven by the forces of supply and demand and limitations on supply, for example. However, whether or not investors would treat Bitcoin as a "safe haven" investment during times of turmoil in the stock market hadn't been proven.

On March 12, as the global stock markets plummeted and circuit breakers halted trading on the NYSE, the price of cryptocurrencies also took a nosedive. Bitcoin lost more than 40% of its value – the biggest single-day percentage drop in price since 2013.

However, on that day, gold held its price. Critics were quick to point out that the "digital gold" theory had been debunked, but perhaps they were a little too quick. Over the days that followed, gold recorded its sharpest drop in a single week, losing around 12% of its price.

Since then, the price of both assets has recovered somewhat, although Bitcoin to a lesser extent than gold, after recording a more significant decrease. Nevertheless, according to data aggregator Skew, Bitcoin and gold are showing record correlation levels of more than 50%, perhaps demonstrating that in times of economic uncertainty, the concept of Bitcoin as digital gold is more accurate than it initially seemed.

2. Open interest in futures and options takes a hit

March 12 was a pivotal moment on the cryptocurrency markets across derivatives, too. Before the coronavirus started to take hold, Bitcoin futures had been enjoying something of a moment. According to Skew, total open interest had more than doubled from around $2.2 billion in November 2019, to $5 billion in mid-February.

On March 12 and 13, as the price of Bitcoin dropped precipitously, crypto exchanges liquidated millions of dollars' worth of long positions.

Market leader BitMEX came under particular fire, as it had experienced two 25-minute outages meaning traders had no access to their accounts to top up margin or take any actions to hedge their positions. Traders on BitMEX saw over $1.5 billion of positions liquidated in the space of two days.

This drop illustrates the extent of investor panic, withdrawing from speculating even with short positions. It will be intriguing to see how quickly the crypto derivatives markets recover from this blow over the coming months, given that 2019 was a period of massive growth in these markets.

3. Demand for stablecoins skyrockets

Stablecoins were another asset class that was burgeoning before panic surrounding COVID-19 took hold. Because they're pegged to fiat currencies such as the USD, stablecoins had become the go-to currencies for traders entering and exiting positions. In 2019, the most popular stablecoin, Tether (USDT), had doubled its market cap from $2 billion to $4 billion, and overtaken Bitcoin as the most traded cryptocurrency.

During the market turmoil in March, while the rest of the market tanked, Tether came out smelling of roses. The market cap of USDT gained a further $1.5 billion in the second half of March alone, as Tether Limited attempted to mint enough stablecoins to meet the demand of investors keen to convert their gains or losses to a more predictable asset.

Sam Bankman-Fried, CEO of FTX Exchange and rapidly becoming something of a sage on crypto-Twitter, attributed Tether's March explosion to a flow of OTC originating in Asia, along with investors converting their Bitcoins to Tether as a means of hedging and reducing risk.

Uncertain times for token holders

The cryptocurrency markets are always notoriously volatile, even when the rest of the economy is sailing in smooth waters.

      However, the events in March have provided a flavor of what we can expect from the crypto markets once the traditional markets experience tumult. Whether these trends continue to play out as the coronavirus bites harder, remains to be seen.


      Live today! Unfiltered lessons of a female entrepreneur

      Join Pulitzer Prize-winning reporter and best-selling author Charles Duhigg as he interviews Victoria Montgomery Brown, co-founder and CEO of Big Think, live at 1pm EDT today.

      Two MIT students just solved Richard Feynman’s famed physics puzzle

      Richard Feynman once asked a silly question. Two MIT students just answered it.

      Surprising Science

      Here's a fun experiment to try. Go to your pantry and see if you have a box of spaghetti. If you do, take out a noodle. Grab both ends of it and bend it until it breaks in half. How many pieces did it break into? If you got two large pieces and at least one small piece you're not alone.

      Keep reading Show less

      Two-thirds of parents say technology makes parenting harder

      Parental anxieties stem from the complex relationship between technology, child development, and the internet's trove of unseemly content.

      Sex & Relationships
      • Today's parents believe parenting is harder now than 20 years ago.
      • A Pew Research Center survey found this belief stems from the new challenges and worries brought by technology.
      • With some schools going remote next year, many parents will need to adjust expectations and re-learn that measured screen usage won't harm their children.

      Parents and guardians have always endured a tough road. They are the providers of an entire human being's subsistence. They keep that person feed, clothed, and bathe; They help them learn and invest in their enrichment and experiences; They also help them navigate social life in their early years, and they do all this with limited time and resources, while simultaneously balancing their own lives and careers.

      Add to that a barrage of advice and reminders that they can always spend more money, dedicate more time, or flat-out do better, and it's no wonder that psychologists worry about parental burnout.

      But is parenting harder today than it was, say, 20 years ago? The Pew Research Center asked more than 3,600 parents this question, and a majority (66 percent) believe the answer is yes. While some classic complaints made the list—a lack of discipline, a disrespectful generation, and the changing moral landscape—the most common reason cited was the impact of digital technology and social media.

      A mixed response to technology

      children using desktop computer

      Parents worry that their children spend too much time in front of screens while also recognizing technologies educational benefits.

      (Photo: Chris Hondros/Getty Images)

      This parental concern stems not only from the ubiquity of screens in children's lives, but the well-publicized relationship between screen time and child development. Headlines abound citing the pernicious effects screen time has on cognitive and language development. Professional organizations, such as the American Academy of Child and Adolescent Psychiatry, issue warnings that too much screen time can lead to sleep problems, lower grades, weight problems, mood problems, poor self-image, and the fear of missing out—to name a few!

      According to Pew's research, parents—which Pew defines as an adult or guardian with at least one child under their care, though they may also have adult children—have taken these warnings to heart. While 84 percent of those surveyed are confident they know how much screen time is appropriate, 71 percent worry their child spends too much time in front of screens.

      To counter this worry, most parents take the measured approach of setting limits on the length of time children can access screens. Others limit which technologies children have access to. A majority of parents (71 percent) view smartphones as potentially harmful to children. They believe the devices impair learning effective social skills, developing healthy friendships, or being creative. As a result, about the same percentage of parents believe children should be at least 12 years old before owning a smartphone or using social media.

      But a deeper concern than screen time seems to be what content those screens can access. An overwhelming 98 percent of those surveyed say parents and guardians shouldered the responsibility of protecting children from inappropriate online content. Far less put the responsibility on tech companies (78 percent) or the government (65 percent).

      Parents of young children say they check the websites and apps their children use and set parental controls to restrict access. A minority of parents admit to looking at call and text records, tracking their child's location with GPS, or following their child on social media.

      Yet, parents also recognize the value of digital technology or, at least, have acquiesced to its omnipresence. The poster child for this dichotomy is YouTube, with its one billion hours played daily, many before children's eyes. Seventy-three percent of parents with young children are concerned that their child will encounter inappropriate content on the platform, and 46 percent say they already have. Yet, 80 percent still let their children watch videos, many letting them do so daily. Some reasons cited are that they can learn new things or be exposed to different cultures. The number one cited reason, however, is to keep children entertained.

      For the Pew Research Center's complete report, check out "Parenting Children in the Age of Screens."

      Screens, parents, and pandemics

      Perhaps most troubling, Pew's survey was conducted in early March. That's before novel coronavirus spread wildly across the United States. Before shelter-in-place laws. Before schools shuttered their doors. Before desperate parents, who suddenly found themselves their child's only social and educational outlet, needed a digital lifeline to help them cope.

      The COVID-19 pandemic has led many parents to rely on e-learning platforms and YouTube to supplement their children's education—or just let the kids enjoy their umpteenth viewing of "Moana" so they can eke out a bit more work. With that increase in screen time comes a corresponding increase in guilt, anxiety, and frustration.

      But are these concerns overblown?

      As Jenny Radesky, M.D., a pediatrician and expert on children and the media at the University of Michigan's C.S. Mott Children's Hospital, told the New York Times, parents don't always need to view screen time as a negative. "Even the phrase 'screen time' itself is problematic. It reduces the debate to a black and white issue, when the reality is much more nuanced," Radesky said.

      Radesky helped the American Academy of Pediatrics craft its statement about screen time use during the pandemic. While the AAP urges parents to preserve offline experiences and maintain limits, the organization acknowledges that children's media use will, by necessity, increase. To make it a supportive experience, the statement recommends parents make a plan with their children, be selective of the quality of media, and use social media to maintain connections together. It also encourages parents to adjust their expectations and notice their own technology use.

      "We are trying to prevent parents from feeling like they are not meeting some sort of standard," Radesky said. "There is no science behind this right now. If you are looking for specific time limits, then I would say: Don't be on it all day."

      This is good advice for parents, now and after the pandemic. While studies show that excessive screen time is deleterious, others show no harm from measured, metered use. For every fear that screens make our kids stupid, there's a study showing the kids are all right. If we maintain realistic standards and learn to weigh quality and quantity within those standards, maybe parenting in the digital age won't seem so darn difficult.

      How meditation can change your life and mind

      Reaching beyond the stereotypes of meditation and embracing the science of mindfulness.

      Videos
      • There are a lot of misconceptions when it comes to what mindfulness is and what meditation can do for those who practice it. In this video, professors, neuroscientists, psychologists, composers, authors, and a former Buddhist monk share their experiences, explain the science behind meditation, and discuss the benefits of learning to be in the moment.
      • "Mindfulness allows us to shift our relationship to our experience," explains psychologist Daniel Goleman. The science shows that long-term meditators have higher levels of gamma waves in their brains even when they are not meditating. The effect of this altered response is yet unknown, though it shows that there are lasting cognitive effects.
      • "I think we're looking at meditation as the next big public health revolution," says ABC News anchor Dan Harris. "Meditation is going to join the pantheon of no-brainers like exercise, brushing your teeth and taking the meds that your doctor prescribes to you." Closing out the video is a guided meditation experience led by author Damien Echols that can be practiced anywhere and repeated as many times as you'd like.
      Keep reading Show less
      Scroll down to load more…
      Quantcast