It has been thought that bitcoin would be an uncorrelated asset class and one that would thrive during a time of crisis.
As the first few weeks of the latest financial crisis have shown, this may not be true (for now). Of course, we don’t want to draw definitive conclusions based on a short timeframe, and trends can always change.
But at this point in time, both the safe-haven status and noncorrelation status of cryptocurrency have been brought into question (edit – two months later, the narrative has very much shifted back to what it was before the crisis).
During much of the current crisis, Bitcoin has been moving in tandem with the equity and oil markets (which has been a strong downward trend).
Many people interpret this as BTC no longer being noncorrelated with traditional asset classes. It’s also being said that BTC isn’t a safe haven (based off a few weeks of price action – cue the eye roll).
I think it’s too early to make a judgement on either front.
We can’t say for certain whether or not BTC is a safe haven because the crisis has only just begun. The price of everything has tanked as people are scrambling for liquidity. So, by the logic of Bitcoin not being a safe haven, we would have to conclude that gold is also not a safe haven.
In fact, following this narrative further, it can’t be said that anything acts as a safe haven anymore, other than cash. And we know that fiat currency is in a constant state of depreciation.
It’s sort of like a financial trap. Everyone runs into cash, then as the central banks print more money to deal with the crisis, even cash goes down.
So, there will be nowhere to run in the end – nowhere other than gold and bitcoin.
Precious Metals Demand Soars
People have already begun rushing into silver and gold like never before, despite the fact that spot prices have barely budged.
JM Bullion, a large online supplier of precious metals, recently announced that they have instituted a temporary $299 order minimum. Premiums have also skyrocketed, with the lowest available premiums on silver coins being $4.49 per coin. That’s at least twice the pre-crisis premium.
There are reports coming in that physical precious metals cannot even be found at many vendors, and where they are available, premiums can exceed up to 100% of the spot price.
In other words, a silver coin that is valued at $13 on the COMEX exchange (a.k.a. the spot price) might only be available for physical purchase at a price of $26 or more, if you can even find any for sale.
For gold, the premiums are similar, although not quite as extreme. This indicates that the demand for silver is outpacing that of gold, which suggests that it’s not just wealthy investors buying silver – it’s everyone.
People who have a lot of wealth to store tend to favor gold for two reasons: 1) it’s easier to store a larger amount of wealth in a smaller physical amount of metal, and 2) gold is a monetary metal that maintains its value for mostly store-of-value reasons.
Silver, on the other hand, is more of an industrial metal, one that is required for the manufacturing of a long list of products we use every day. Both metals are used for both purposes, but silver has much more industrial demand than gold.
Silver is preferable for the average person because it’s so much cheaper. During any other time over the course of the past year, one ounce of silver would have been about $20 or less, while one-tenth ounce of gold (one of the smallest denominations) would have been about $140.
It’s clear that everyone and their mother has begun piling into gold and silver. The demand for metals has increased and will probably reach record highs. As for supply, there has always been ample supply of both metals.
And in most cases, when prices fall, miners decrease production, leading to a fall in supply, which eventually leads to a rise in price, and miners can begin production again and the cycle repeats. This time, however, will be different.
Some miners, such as Pan American Silver Corp. (PAAS), have already had to bring a halt to some or all operations due to the virus. If more miners have to follow suit, which they will, then the soaring demand will soon be met with a dramatic drop in supply. This begs the question:
What happens when there is no gold and silver left to buy?
Bitcoin Demand Will Soar
The answer, in a word, is Bitcoin.
When stocks are tanking (or trading stops), bonds have record low yields, and silver and gold bullion cannot be found, cryptocurrency will be the only option left. Investors who previously might have never considered such a thing will now be forced to recognize the fact that Bitcoin has the same safe-haven properties as gold.
For the most part, everyone already knows about Bitcoin’s desirable properties, especially most people who will care to read this, so let’s not beat a dead horse. The point is people are running out of options when it comes to how to handle their financial resources.
Even central banks may have to begin accumulating Bitcoin reserves. For many years they have been acquiring significant gold holdings.
Yet even they cannot conjure new gold out of thin air as they can do with fiat currency. So, once the gold is gone, they will have to turn to Bitcoin. That’s one potential answer to the question “what does coronavirus mean for crypto?”
Central Banks – A Virus of the Worst Kind
Speaking of central banks, they are about to print record amounts of money to “support the economy.”
Of course, this wouldn’t be necessary if we had a sound money standard, e.g. a gold standard or a bitcoin standard. It also wouldn’t be necessary if as a society we refused to give in to fear and kept going along with business as usual as much as possible.
Call me a heartless killer all you want for that statement, but the fact of the matter is that billions of people’s lives will be forever ruined from the economic fallout of what’s happening now than will ever be killed by the virus itself. The narrative that anyone who even suggests that people should go back to work is somehow going to kill us all must be stopped.
The greatest economic depression in world history has now begun. It’s not going to get better after the virus passes, and nothing will ever be the same. Many of the jobs lost will never come back, as many of the businesses going under will never be able to get back on their feet.
In fact, some pundits are even spreading the narrative that the virus will now always be with us, like the flu, and so we just have to get used to it. Still, others are claiming that we have to keep everyone isolated for 18 months or more until a vaccine can be developed.
What Does Coronavirus Mean for Crypto? Increased Capital Inflows
As others have noted, the cure for coronavirus will be worse than the disease for many millions of people. Not least among these are the 38.4 million newly unemployed (as of the time of publication).
Calls to crisis helplines have already spiked significantly, mostly due to isolation and anxiety.
Into all this darkness shines the light of Bitcoin. Many people who have known a crisis of this magnitude was inevitable will be the beneficiaries of increasing capital flight to safety.
As we have already seen with gold. And while most of this post was written during the initial crisis shock, in the weeks since, the price of the BTC/USD trading pair has recovered almost to pre-crisis levels.
Anyone can begin protecting themselves from the coming “great monetary inflation,” as Paul Tudor Jones calls it. Gold and bitcoin will be two of the best ways to do that.
Disclaimer: I am not a financial advisor and this article shall not be taken as financial advice.