from the world's big
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.
- 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.
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.
Richard Feynman once asked a silly question. Two MIT students just answered it.
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.
But science loves a good challenge<p>The mystery remained unsolved until 2005, when French scientists <a href="http://www.lmm.jussieu.fr/~audoly/" target="_blank">Basile Audoly</a> and <a href="http://www.lmm.jussieu.fr/~neukirch/" target="_blank">Sebastien Neukirch </a>won an <a href="https://www.improbable.com/ig/" target="_blank">Ig Nobel Prize</a>, an award given to scientists for real work which is of a less serious nature than the discoveries that win Nobel prizes, for finally determining why this happens. <a href="http://www.lmm.jussieu.fr/spaghetti/audoly_neukirch_fragmentation.pdf" target="_blank">Their paper describing the effect is wonderfully funny to read</a>, as it takes such a banal issue so seriously. </p><p>They demonstrated that when a rod is bent past a certain point, such as when spaghetti is snapped in half by bending it at the ends, a "snapback effect" is created. This causes energy to reverberate from the initial break to other parts of the rod, often leading to a second break elsewhere.</p><p>While this settled the issue of <em>why </em>spaghetti noodles break into three or more pieces, it didn't establish if they always had to break this way. The question of if the snapback could be regulated remained unsettled.</p>
Physicists, being themselves, immediately wanted to try and break pasta into two pieces using this info<p><a href="https://roheiss.wordpress.com/fun/" target="_blank">Ronald Heisser</a> and <a href="https://math.mit.edu/directory/profile.php?pid=1787" target="_blank">Vishal Patil</a>, two graduate students currently at Cornell and MIT respectively, read about Feynman's night of noodle snapping in class and were inspired to try and find what could be done to make sure the pasta always broke in two.</p><p><a href="http://news.mit.edu/2018/mit-mathematicians-solve-age-old-spaghetti-mystery-0813" target="_blank">By placing the noodles in a special machine</a> built for the task and recording the bending with a high-powered camera, the young scientists were able to observe in extreme detail exactly what each change in their snapping method did to the pasta. After breaking more than 500 noodles, they found the solution.</p>
The apparatus the MIT researchers built specifically for the task of snapping hundreds of spaghetti sticks.
(Courtesy of the researchers)
What possible application could this have?<p>The snapback effect is not limited to uncooked pasta noodles and can be applied to rods of all sorts. The discovery of how to cleanly break them in two could be applied to future engineering projects.</p><p>Likewise, knowing how things fragment and fail is always handy to know when you're trying to build things. Carbon Nanotubes, <a href="https://bigthink.com/ideafeed/carbon-nanotube-space-elevator" target="_self">super strong cylinders often hailed as the building material of the future</a>, are also rods which can be better understood thanks to this odd experiment.</p><p>Sometimes big discoveries can be inspired by silly questions. If it hadn't been for Richard Feynman bending noodles seventy years ago, we wouldn't know what we know now about how energy is dispersed through rods and how to control their fracturing. While not all silly questions will lead to such a significant discovery, they can all help us learn.</p>
Reaching beyond the stereotypes of meditation and embracing the science of mindfulness.
- 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.
Just what every arachnophobe needed to hear.
- A new study suggests some spiders might lace their webs with neruotoxins similar to the ones in their venom.
- The toxins were shown to be effective at paralyzing insects injected with them.
- Previous studies showed that other spiders lace their webs with chemicals that repel large insects.