The coronavirus pandemic has led to the shuttering of the global economy. Many governments issued shelter-at-home orders in an attempt to halt the spread of COVID-19. As unemployment rises and consumer demand falls, the prices of most commodities and equities have fallen.
Cryptocurrencies haven’t escaped the negative effects of the pandemic, and all the major ones have seen serious declines in value. Yet most have enjoyed significant rebounds and bitcoin surged toward the $10k mark before its halving.
Understanding how cryptocurrencies have fared compared to some key assets can help online traders with their strategy. Investors will also be interested to learn which commodities are big market winners.
The Fall of Cryptocurrency Prices
Although cryptocurrencies saw major price movements in the first quarter of 2020, they ended the quarter roughly where they started.
Bitcoin, the most valuable and well-known cryptocurrency, ended Q1 down 10%. Since then, the value of Bitcoin has been steadily recovering, though the cryptocurrency has struggled to hold onto the value it has regained.
Altcoins (or cryptocurrency alternatives to Bitcoin) have fared slightly better than Bitcoin. Many, like Ethereum, were up very slightly. Dash gained 56% in the first quarter. But during the 3 month period starting just 15 days later saw Dash lose 59% of its value.
Many altcoins, including Ether and Litecoin, had been performing better (in terms of percent change) than Bitcoin before the pandemic. But the mid-March market meltdown wiped out nearly all of these assets’ YTD gains. Since then, Ether and Bitcoin prices have rebounded significantly but Litecoin has seen only a minor increase from its trough.
That said, not all cryptocurrencies have declined in value. Some lesser-known, but still legitimate options, such as stable coins (which are cryptocurrencies backed by fiat currencies) have fared well.
Cryptocurrency vs Other Assets
It’s important to look at cryptocurrency in context. Its viability as an investment or trading option depends on how appealing (or not) the alternatives are and over what time period. For example, Bitcoin has done well compared to stocks. While it lost roughly 10% of its value in the first quarter, the Dow lost 23%.
In April, at a roughly 3% gain, bitcoin edged the S&P 500 out in terms of YTD recovery. But gold and US Treasuries posted more impressive gains with gold up 13% YTD and 20+year US Treasurys up 19%.
However, if you turn the focus to percentage gains since the mid-March meltdown gold can’t hold a candle to bitcoin. For example, bitcoin futures traded on the Chicago Mercantile Exchange nearly doubled in value.
Gold is at a seven-year-high. This precious metal becomes sought after in times of economic uncertainty and recession as investors move their assets out of riskier options and into traditional stores of value. Gold is prized for its stable supply, near-indestructibility, and limited industrial applications.
Some hedge funds, like those founded by Paul Singer and David Einhorn, are bullish on gold as a hedge against inflation.
The US Dollar and Other Currencies
Despite the dour economic climate in the United States, the US dollar is trading near record highs. The rise in value has tempered in recent weeks, but it is still strong compared to other major currencies, such as the Euro, the Chinese yuan, and the Japanese yen.
The global demand for the US dollar, one of the most liquid assets in the world, increased significantly as investors (both individuals and companies) around the world liquidated their holdings for cash.
The Coronavirus Pandemic has led to an economic recession, and the values of cryptocurrencies have not been spared. Though there are some exceptions (namely stable coins), many options lost a significant amount of the value they gained in 2019.
But the second quarter of 2020 has seen a rebound. Although the major cryptocurrencies have not regained the values they had at their peaks in mid-February, most are now well above their prices at the start of the year.
Note: gold and US Treasury percentage gains cited here are based on The Wall St. Journal tracking of continuous front-month futures.
Also read: How to Make Extra Money in Uganda in 2020
Author: Allan Bangirana
Allan Bangirana is a freelance writer for Newslibre & Spur Magazine. He is passionate about tech, games and occasionally writes about entertainment, lifestyle and so much more.