2 months ago
Bitcoin has rocketed past US$ 9,000, as the bulls took control of trading in the first month of 2020. But some analysts think it’s a case of coronavirus driving Bitcoin up, not just bullish trading.
As coronavirus continues to spread in China and other parts of the world, Bitcoin prices have risen. This begs the questions: is it a coincidence or is coronavirus driving Bitcoin up?
The virus originated in the city of Wuhan, in central China. According to the National Health Commission, the death count has reached 132 and the number of confirmed cases increased to 5,974 as of Wednesday, January 29. That’s up from 2,835 just two days earlier.
Chinese and international markets slumped after the coronavirus outbreak and subsequent lockdowns in Wuhan and other cities in China, which hindered with the Chinese New Year celebrations. Chinese authorities have suspended trading on both the Shanghai and Shenzhen stock exchanges until February 3. The Dow Jones Industrial Average fell by more than 450 points on Monday, January 27, with shares of tourism and travel-related companies suffering sharp losses. The stock market’s response in tandem to the coronavirus is understandable, considering the risks it imposes on investors.
In contrast, Bitcoin has shot past resistance to more than US$ 9,300 during the same period, earning it a tag as a risk-aversive asset. A similar price rally was observed in the first week of this January, following the US drone attack on Iranian General Qassem Soleimani in Iraq and Teheran’s retaliation. The stock market responded with a slump and Bitcoin surged by more than 6%. Not for the first time, Bitcoin was called a safe haven for investors. Similarly, Bitcoin has gained traction as an alternative means of payment and a store of value in unstable regimes and countries dealing with hyperinflation.
A spurious correlation?
Respected analyst Alex Krüger questions the safe haven argument. “Keep in mind that until Friday the narrative was ‘Coronavirus pushing bitcoin lower.’ It now is ‘Coronavirus pushing bitcoin higher.’ Some people try very hard to create narratives,” he tweeted Tuesday, January 28.
However, considering that we saw not only Bitcoin, but also gold prices rising at this time, the perception of a correlation is understandable. It is conceivable that investors were looking for assets to take their money out of the stock market and invest in unrelated markets. In any case, two bullish rallies in the first month of 2020 are seen as excellent news for Bitcoin traders after a lethargic 2019.
The coronavirus news may also have implications for cryptocurrency futures markets. With its unexpected spikes, Bitcoin is not behaving predictably, which could lead to the risk of fast liquidations. Potentially, the Bitcoin futures market will make another set of headlines showing high volumes at CME or Bakkt.
Traditionally, February is considered a strong month for the cryptocurrency markets. Bitcoin settling above US$ 9,000 before the second month begins has created further expectations of appreciation among traders. The direction Bitcoin & Co. head once the coronavirus crisis is over will be an indication of which interpretation is valid. In the meantime, governments and responsible health organizations are hopeful of putting an end to the outbreak. Let’s hope they succeed, and fast.
Please note: Blocks99 does not provide legal or investment advice. Please refer to our legal text.
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