Analysis

Bitcoin collapses with global markets: Key analysis

As Bitcoin collapses alongside traditional markets, its function as an asset value reserve is called into question.

Since the start of the rally in the price of Bitcoin at the beginning of this year, the unfortunate advance of the coronavirus has been named as one of the fundamental factors that would boost the growth of BTC. 

However, when traditional markets collapsed today the prices gold and silver grew. Bitcoin meanwhile has followed the Dow Jones route and has fallen in its price, causing its position as an asset reserve of value to be questioned.

Bitcoin: digital gold

On multiple occasions, Bitcoin has been referred to as the “digital gold.” This is due to the purported quality of the cryptocurrency as an asset value reserve. That is, as an asset whose relationship with traditional markets is inversely proportional . So when they fall, the asset value reserve maintains its value or increases it.

Therefore, these assets such as gold, silver, and theoretically Bitcoin, would attract investors in times of uncertainty globally. Those who would look for a place to place their capital to protect their value in the event of a collapse in the markets.

This had led most crypto world analysts to assume that there was a direct relationship between the coronavirus and Bitcoin. Associating the increase in the price of the cryptocurrency, to the very unfortunate ravages caused by the virus in China and other countries. 

The fall of the markets

However, this theory seems to be being challenged today. Well, an important outbreak of the coronavirus in Italy has generated an increase in concern about the disease’s progress globally. Leading global financial markets to collapse. Represented this fall in the loss of more than 3% of the value of the Dow Jones and S&P 500 indices.

Traditional indices suffered a sharp decline

This fact should have generated, in theory, a significant increase in the value of Bitcoin. Just as it did in other value reserve assets such as gold and silver . Precious metals that saw their value soar today by about 2%, as investors’ concern increased.

But, while this was happening, the price of Bitcoin also fell, losing more than 3% of its value. Emulating to some extent the impact received by traditional markets. And calling into question the condition of BTC as an asset value reserve globally.

The fall of Bitcoin as gold and silver rise calls into question the cryptocurrency

So far, analysts still do not give a convincing explanation about the origin of this phenomenon. Even more strange, is that, on other occasions, the behaviour of BTC has emulated that of gold and silver in times of global uncertainty.

Therefore, it would still be too early to dismiss Bitcoin as an asset value reserve. But, without a doubt, today’s events will lead to a reevaluation of the cryptocurrency. And, above all, of its relationship with traditional financial markets.

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