Bitcoin's coronavirus bump reveals an emergency hedge
Stock markets have endured dramatic swings since the coronavirus erupted in China and talks of pandemics surfaced. But the notoriously volatile bitcoin market has been steadily climbing as investors see value in crypto's ability to thrive as traditional financial rails are under pressure.
"The ongoing upward trajectory of the price of bitcoin correlates to the spread of the coronavirus," Nigel Green, chief executive and founder of deVere Group advisory, said in a media statement.
An increase in the 30% range of the digital currency since the start of 2020 marks the best start to a year for bitcoin since 2012, deVere Group reported. Bitcoin has increased by 10% each week in which the coronavirus has spread — a situation that deVere cites as a clear indication that those who fear traditional stocks and currencies will suffer under the weight of the health emergency are hedging their bets with an alternative option. As of this week, the value of one bitcoin has remained steadily over $9,000.As volatile as bitcoin can be on its own, it has shown an ability to stay on a steady course during health emergencies that generally have at least an initial impact on traditional investments. Bitcoin's underlying blockchain technology can be useful in times of global emergencies when money has to move quickly to an affected region and it has to be tracked to assure it gets exactly to where the sender intended.
"The more individual cases that are identified, the more countries around the world that are affected, and the greater impact on traditional financial markets, the higher the price of bitcoin has jumped," Green said, adding investors view bitcoin as a "safe haven asset" in times of uncertainty.
Blockchain media and content platform Bolt reports the virus has allowed bitcoin bulls to return to the investment table, though Bolt warned that traditional markets have stabilized and have possibly finished pricing the impact of coronavirus.
"Traditionally seen as unregulated and volatile, most fund and asset managers have avoided crypto as asset classes," Christel Quek, chief commercial officer and co-founder of Bolt, said in a media statement. "However, with cryptocurrency funds outperforming hedge funds, there might once again be an appetite for bitcoin amongst the investment firms and managers."
Though many market participants in the past have been put off by the volatility of cryptocurrencies, the fact that JPMorgan became the first U.S. bank to create and successfully test its digital JPM Coin for B2B payments early last year has shown investors the potential advantages of the payment method, Quek added.
While bitcoin and other cryptocurrencies have primarily been investment assets, some fintechs have touted bitcoin's potential for years as a standard payment type.
Companies like CoinsPad, initially a cryptocurrency provider for the gaming industry, has converted much of its focus to cryptocurrency processing services for online businesses to incorporate into their sites. The company is trying to help non-blockchain companies become more adept at tracking customer payments — even in a complex system accepting various forms of cryptocurrency — and at the same time offering instant payments and exchange of crypto to other currencies.
CoinsPad did not respond by deadline to inquiries about its progress or business plan at this time.
"Bitcoin today is primarily an investment vehicle, more than it is a form of payment," said Tim Sloane, director of emerging technologies advisory services for Boston-based Mercator Advisory Group. "Individuals can speculate that bitcoin will increase in value due to a disaster, but they should so only using spare funds."
Despite blockchain's proven help in the U.K.'s Start Fund program in which the country's rapid-response organization operated through 42 agencies has used the technology to gain faster access to aid payments, it has yet to translate to becoming a digital payment method for all disasters and beyond to more mainstream uses.
It would be difficult to expect "wide acceptance of bitcoin when those in an emergency need to purchase items critical to their survival," Sloane said. "Bitcoin acceptance remains limited compared to cash."
As major payments companies lament the effect of coronavirus, with Visa CEO Alfred Kelly even noting last week that it is affecting e-commerce because shipping and delivery personnel in China are being ordered to stay home, the door opens a bit wider for discussions about the role cryptocurrency can play as both a stable investment and a payment option.
As such, those who see cryptocurrency finding its place are quick to point to the positive factors that continue to evolve.
A Forbes magazine article last year speculated that the best use case for bitcoin for the next five years, until real-world payments are fully enabled, is to operate as collateralization of real world assets to facilitate banking. And deVere Group remains bullish on bitcoin prospects.
"While coronavirus and geopolitical tensions have certainly been underscoring the reputation of decentralized, non-sovereign, secure currencies such as bitcoin as safe havens, they are somewhat peripheral drivers for why cryptocurrencies are now regarded as the future of money," deVere's Green said. "There will be minor peaks and troughs, as in all markets, but I predict the overall trajectory of bitcoin to remain upward until such a time as coronavirus peaks,"