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Bitcoin Value Proposition: The Effects of Halving on the Safe-Haven Status
- What is driving the current sell-off by investors?
- Insights into the coming Bitcoin halving and how it may affect the coin’s safe-haven status.
As Covid-19 looms large, no financial market is being spared. Cryptocurrencies are not an exception, with some traders and analysts wondering whether the upcoming halving will have a substantial impact on Bitcoin’s price and which direction it will take.
After the major stocks sold off in August 2019, some experts went on to describe Bitcoin as a safe haven asset. This statement was justified on the basis of the negative correlation between S&P and Bitcoin’s pricing.
However, the price of Bitcoin plunged over 40% in just one day last week. This was the first time since the coin’s inception that the market experienced such a panic-driven sell-off.
Will the ongoing Coronavirus outbreak have an effect on Bitcoin’s “safety net” status after the halving? Keep on reading.
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Understanding Bitcoin’s Sell-Off
Previous blogs described the importance of trading the news and do a proper research before engaging the markets. Coronavirus, unlike past crashes, is not driven by a demand-side shock.
In other words, consumers are still spending money on supplies and goods in preparation for a potential lockdown. Conversely, a demand-side shock is usually driven by a sharp increase in unemployment rates or tariffs that stop consumers from spending money. In these situations, governments typically make currencies more widely available. Bitcoin prices tend to surge and benefit from demand-side shocks as the cryptocurrency serves a hedge for weak economies.
But Coronavirus is unique; consumer demand remains strong even though the market is going down. However, there are issues surrounding the supply side. Industrial shutdowns in China and other countries caused disruptions in the supply of goods and materials, thus declining production levels. This could be the main reason why investors are selling their coins.
Safe-Haven Status and Importance of Halving
Coronavirus is affecting the prices of all assets and creating a level of uncertainty for all traders. However, there could still be good news for Bitcoin.
Safe-haven assets are currently experiencing a major increase in price. This level of volatility could mean that gold and treasuries will become more expensive. In turn, this could drive investors to purchase cheaper assets and given Bitcoin’s declining prices, this could present an opportunity to solidify it’s safe-haven status.
However, it’s also extremely common for Bitcoin to surge once investors start losing faith in central banks and the financial market itself. Expectations for upcoming moths are that central banks will announce rate cuts to counteract the ongoing crisis. However, if this fails, investors will probably start placing their money on Bitcoin.
It is also important to note that the halving could also be responsible for Bitcoin’s safe-haven status. History has shown that Bitcoin’s price spikes up after each halving. The fears that this crisis is creating affects directly the bullish perspective for Bitcoin’s price. However, the supply shock remains a positive indication of Bitcoin’s price and the reason that could ultimately result in it becoming a safe-haven asset.