I wrote a brief article yesterday asking the question of Bitcoin's viability as a stable asset to flock to when more traditional assets, like the stock market, are beginning to plummet.
Bitcoin's ardent supporters have long maintained that, like gold, BTC is a viable hedge against more traditional markets when the latter take a downturn. It is supposed to be a way to protect your assets during a recession, when fiat currency is in crisis. This has always been one of its core functions, its supporters have said for the last decade.
Well, we might finally found out if any of that is true or bullshit.
I posed the question and showed some graphs yesterday, comparing BTC to stock indexes and the value of gold. I did not see any obvious correlation between BTC and the other charts. It did seem that gold saw a surge as other markets fell, though.
I also pointed out that the only correlation was in the last few days, with BTC following a falling stockmarket, instead of the opposite as BTC's supporters have long held.
It seems today that more confirmation has arrived.
Alongside a stock market that is seeing record bad days in the past two years, BTC continues to fall from a weekly high around $10k. If it can maintain stability in the coming weeks against a falling stock market, than BTC can live up to its hype as a hedge. But so far it doesn't look good.
The latest from the stock market is rough. The DOW has lost another some 879 points. The S&P is down another 3%. U.S. Treasury bonds sunk, with the yield curve inverting since Monday. Meaning that, if you have a 10-year bond with the Treasury, your value after holding that bond for ten years is assumed to be less than the value of holding a 3-month bond. This curve is generally used to indicate a recession.
If fears of the corona virus trigger a mass sell off of a vast and bloated market, beginning the recession that everyone has been expecting, than we will finally see if Bitcoin can perform one of its core duties: hedging against traditional markets as a store of value.
Ten years of existence for Bitcoin has indeed proved that it IS an asset. But its ability to stand on its own, away from stocks, is what most have expected of it. A failure in this regard could be the actual blow to kill Bitcoin. Note that institutional investors have made the claims innumerable times that BTC is dead. And they've always been wrong. But a mass sell off of Bitcoin in a time of recession, that is, a failure of Bitcoin to be a hedge against a recession, signals that one of its main functions is null and void. That failure, in my opinion, is what would actually kill BTC in the eyes of its own supporters.
Don't be surprised to see massive shorts right now.
Where are you bets? Do you think BTC will hold?
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