Coronavirus, Global Markets, and Crypto

Since February, the Coronavirus has taken the world by storm, capturing the world’s attention and dominating the media. Markets have taken a massive hit, with every major index collapsing over 20% in value over the past few weeks. In the United States, the Dow Jones Industrial Index (DJI) measures the country’s largest 30 corporations. It reached highs of nearly 30,000 points, and has since plummeted over 35% to lows of 18,200. 

Other global markets and supposed “safe-havens” such as Gold, Silver, and Bitcoin have taken damage from the grim news also. Gold has become extremely volatile, Silver has lost a significant amount of value, and Bitcoin fell to a low of $3500 which has not been seen since early 2018. 

Bitcoin has proven the most resilient in global markets, rebounding to the mid $6k level, where it has been consolidating for the past week or so. 

One interesting factor is that Bitcoin has been following the trend of global markets, which has not always been the case. Most people think of Bitcoin as a hedge against global markets, and would assume that it behaves in the opposite manner of the markets. However, the correlation itself varies with time. 

When the correlation is positive (>0), it means that crypto moves with global stock markets. When the correlation is negative (<0), it means crypto moves against global markets. 

Check out the below graph of the correlation between Bitcoin (crypto) and markets over time: 

Notice that at the beginning of 2020, the correlation is nearing its all time high level. This explains why Bitcoin has dropped so suddenly along with the stock market crashing. However, Bitcoin’s bounce upward indicates that the correlation is weakening, but still a positive number. 

This morning, March 24, global stock markets have recovered sharply, as hopes of effective coronavirus treatments indicate that the end may be in sight. Additionally, economic stimulus packages are being debated that will provide some much-needed economic relief. Since the markets are still positively correlated, the bump in Bitcoin price was to be expected. 

As the markets continue to recover, it is expected that Bitcoin will continue to recover in price. Keep in mind that this is only the opinion of the author, and should not be taken as financial advice. Always do your own research before making any investment. 

To learn more about Crypto Markets, Bitcoin, and how to create a passive crypto income in this time of crisis, check out Midas Investments.



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