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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.
1. Bitcoin shows a higher correlation to gold<p>The idea of Bitcoin as "digital gold" has been around for a while. It's true that <a href="https://bigthink.com/new-study-on-cryptomining-energy" target="_self">the two assets share some similarities</a>: 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.</p><p>On March 12, as the global stock markets plummeted and <a href="https://www.cnbc.com/2020/03/12/stock-futures-hit-a-limit-down-trading-halt-for-a-second-time-this-week-heres-what-that-means.html" target="_blank">circuit breakers halted</a> trading on the NYSE, the price of cryptocurrencies also took a nosedive. Bitcoin <a href="https://coinmarketcap.com/currencies/bitcoin/" target="_blank">lost</a> more than 40% of its value – the biggest single-day percentage drop in price since 2013.</p><p>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 <a href="https://www.jmbullion.com/charts/gold-price/" target="_blank">around 12%</a> of its price.</p>
2. Open interest in futures and options takes a hit<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yMjkxNDEzNS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTU5Njc3ODk3MH0.0zhIKg5fbX7_YWK8sqNyClvLTGreKGsQAmLUO8xeiNA/img.png?width=980" id="296fe" class="rm-shortcode" data-rm-shortcode-id="7c7356f86e2f3d8c0d604913bf6a221a" data-rm-shortcode-name="rebelmouse-image" /><p>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.</p><p>On March 12 and 13, as the price of Bitcoin dropped precipitously, crypto exchanges liquidated millions of dollars' worth of long positions.</p><p>Market leader BitMEX came under particular fire, as it had <a href="https://cointelegraph.com/news/bitmex-takes-a-hit-community-cries-foul-play-following-market-crash" target="_blank">experienced two 25-minute outages</a> 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.</p>
3. Demand for stablecoins skyrockets<p>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 <a href="https://coinmarketcap.com/currencies/tether/" target="_blank">doubled its market cap</a> from $2 billion to $4 billion, and <a href="https://www.bloomberg.com/news/articles/2019-10-01/tether-not-bitcoin-likely-the-world-s-most-used-cryptocurrency" target="_blank">overtaken Bitcoin</a> as the most traded cryptocurrency.</p><p>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.</p>
Why invest real money in digital coin? Because the payoff a decade from now could be enormous.
When it comes to Bitcoin it's all about the long game, says Abra founder and CEO Bill Barhydt. Bitcoin is flexible because you can break it up into smaller divisions, called Satoshis. In 10 to 15 years, those Satoshis alone could be $1000 a piece. It might take a while for Bitcoin to really start trading at the level of gold and silver, says Bill. Interestingly enough, says Bill, by and large, people who have Bitcoin are holding on to it, just like those precious metals. Once more of it is mined, we'll start to see the market become less volatile.
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