You may be surprised to hear about the opportunity in cryptos because they also felt the heat from the coronavirus as investors sold pretty much everything.
Between February 14 and March 13, bitcoin fell from around $10,500 to $3,867. But on Friday morning, it shot up above $6,900 – a 78% rally from the recent low.
Bitcoin isn’t the only crypto rebounding sharply. Some smaller cryptos have done even better, gaining over 100% in the last week.
In fact, the basket of the 100 largest cryptocurrencies known as the CIX100 has greatly outperformed the broader market in 2020. The CIX100 is down just 8% compared to the 30% drop in the Dow Jones Industrial Average and the 26% fall in the S&P 500.
That’s great news for bitcoin… and cryptocurrencies in general.
It’s also not entirely unexpected given what’s happening in the broader market and the massive amount of stimulus coming from governments around the globe.
As governments pump money into economies to help offset the effects of the coronavirus, traditional currencies become less valuable. It’s simple supply and demand.
But bitcoin and a few other cryptocurrencies are immune from this supply and demand manipulation, making them a very interesting currency hedge right now.
The Federal Reserve increased its balance sheet to a record high of $4.7 trillion this week after cutting rates to zero last Sunday. It has also shoveled $1.5 trillion into the system in the form of short-term loans and Treasury security purchases.
The European Central Bank said it will buy 750 million euros worth of securities to support its economy, while the Bank of England has cut interest rates as well.
Zero rates (or even negative rates) could become the norm as the world continues to fight the coronavirus
In the meantime, investors will look for ways to hedge against global currency fluctuations where they can. Bitcoin and other cryptocurrencies provide such a hedge because their supply can’t be inflated by governments or anyone else.
Only 21 million bitcoins can be created. Ever. That’s why it’s often called “digital gold.”
Not only that, in a world where dramatic steps are being taken to avoid contaminating others, cryptocurrencies represent a safe, effective, “touchless” way to transfer money. They are digital by design and can be traded across borders in the blink of an eye.
In Italy, where the number of coronavirus deaths has overtaken those in China, Banco Sella recently launched a bitcoin trading service to allow homebound Italians to pay for goods and services using the cryptocurrency.
I expect more banks will follow Banco Sella’s lead in the days and weeks to come.
Momentum Is Building
If you want evidence of the building momentum, look to the digital currency trading platforms. They’re reporting strong interest from investors.
River Financial CEO Alex Leishman recently told CoinDesk that his company signed up 20% of all of its clients… just this month! Many are first-time bitcoin buyers. And while hedge funds, institutional investors, and other businesses have been selling in part to pay off heavily leveraged loans in a down market, everyday investors are buying.
What’s more, we’re about to witness a catalyst to higher prices coming in mid-May. That’s when bitcoin’s “halvening” is set to take place.
