European leaders, including Angela Merkel and Emmanuel Macron, have warned of the possibility of new outbreaks of disease. Due to COVID-19, in March, the value of cryptocurrencies fell by half, but quickly returned to its previous levels.
The spread of coronavirus infection has led to many inefficiencies in preserving capital. For example, government bonds almost ceased to generate income, in March, the value of shares fell to multi-year lows, and cryptocurrencies also suffered.
Now France, Germany and four other European countries called on the EU to prepare for new pandemics, recognizing that the measures taken to curb the spread of coronavirus were not enough. Emmanuel Macron and Angela Merkel, together with the leaders of Spain, Poland, Belgium and Denmark, proposed creating a “single European approach” to deal with such problems, writes Barrons .
For example, it is proposed to create a constant supply of medical protective equipment and medicines and to establish cooperation that will allow timely production of essential goods during a crisis. The authorities also called for the development of science and the financing of extensive clinical trials to create vaccines.
Why is the S&P 500 more important for bitcoin than COVID-19
One of the consequences of countries not being ready for the COVID-19 pandemic was the economic crisis. In March, financial markets experienced the largest collapse. For two days, the bitcoin exchange rate fell almost half, to a minimum of $ 3800. March 23, quotes of the American S&P 500 index fell by more than 30%, to 2230 points. German DAX was down 40% to 8411 points. The fall in oil demand amid restrictions imposed due to coronavirus infection led to the fact that on April 21, trading in futures for WTI crude oil closed at minus $ 37.
The founder and portfolio manager of the Algalon Capital investment fund, Alexei Antonov, explained that bitcoin and other cryptocurrencies depend on the general state of the American economy. If a new outbreak occurs, you should first of all pay attention to the reaction of the main markets (for example, the S&P 500). The expert is sure that the cryptocurrency exchange rate primarily depends on this index, and not on a pandemic or unrest.
“If you have a question – what to buy: bitcoin or altcoins, then it’s not worth buying. Any purchase is carried out as part of a general strategy for investing in cryptocurrencies, on an understandable part of your portfolio. With this approach, the question of what to buy from you will not arise, ”the expert explained.
Investor panic: will there be a new sale
The cryptocurrency market has grown stronger in recent months than other areas. For example, the price of bitcoin has increased by almost 150%, to the current level of $ 9,700. While the S&P 500 index from March lows rose by 46%, to 3200 points.
In any crisis, some investors panic, sells assets and goes into the cache – this is psychology and will always be like this, said Nikolai Klenov, financial analyst at Raison Asset Management, an investment company. If we consider the March collapse of the Bitcoin exchange rate as the result of such a panic, then in the case of a new pandemic, this behavior will repeat.
“However, I am inclined to believe that the March collapse of bitcoin is more the result of manipulations by large holders, and not the natural movement of the market. It’s impossible to predict what is worth buying with the next pandemic – bitcoin or altcoins. It is not known when this new crisis will happen and what the situation will be in the cryptocurrency market. Perhaps a new pandemic awaits us in 15–20–30 years, and during this time a new coin will appear, which will turn out to be more popular than all known today, ”Klenov emphasized.
Bitcoin is currently the largest cryptocurrency by capitalization. Its share in the digital money market is 64.8%. At the same time, there are currently over 5560 altcoins, according to Coinmarketcap.
How the second wave of COVID-19 will affect the demand for cryptocurrencies
President of the Russian-Asian Union of Industrialists and Entrepreneurs (RASPP) Vitaly Mankevich noted that the March drop in bitcoin is due to sales of the Chinese middle class, which partially kept its “airbag” in cryptocurrency, and the drop in income forced to sell part of the savings to finance current expenses.
“Probably, in the case of the second wave of COVID-19, we will first see a similar movement with a subsequent return to normal. At the same time, current measures undertaken by monetary authorities around the world create a positive backlog for cryptocurrency. The fact is that endless economic stimuli in the form of quantitative easing and negative rates will lead to a surge in inflation over time, which will reduce interest in fiat currencies and force people to look for more reliable means of saving, which include real estate, stocks, art objects and cryptocurrencies, ” – predicted Mankevich.
According to him, the growth in demand for cryptocurrencies will depend on the decisions of the Fed, the ECB and the People’s Bank of China. If the incentives of the authorities do not restart the economy, they will have to increase their volume, which will also increase inflation and lead to increased interest in the new type of assets.
At the moment, no one can say exactly how bitcoin and altcoins will respond to new global economic shocks. However, digital money cannot be called a defensive asset now, so it’s premature to use it to save capital. Cryptocurrencies are highly volatile, which is why they are more suitable for speculation.