Crypto’s Structure More Resilient Than Gold: Is It Bad News for Gold Investors?
The mid-March market breakdown due to the coronavirus pandemic was the first destructive testing of the cryptocurrency, and it successfully thrived, according to the latest report released by JP Morgan Chase & Co. ( The report’s titled as “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?”)
After March’s selloff, bitcoin saw a significant rise. From an average $7000, it crossed the $10,000 barrier for a brief period and is now traded at $9489.5 with an increase of 1.98 percent on the day (as of June 22, 2020).
Bitcoin: A Speculative Investment?
After conducting an in-depth analysis of the impact of COVID-19 on bitcoin’s trading patterns, the strategists, Joshua Younger and Nikolaos Panigirtzoglou suggested in the JPMorgan report that cryptocurrency has “longevity as an asset vehicle.”
However, they also highlighted that cryptocurrency is more likely to be used as a speculative investment, where high risk is involved, and profitability is dependent on the changing market values and price fluctuations. In their own words,
“Price action points to their continued use more as a vehicle for speculation than a medium of exchange or store of value.”
The traders of cryptocurrencies didn’t appear to shift their investments to more liquid and safer asset classes, even during the massive mid-March selloff. It shows that Bitcoin may have a strong correlation with the market’s riskier parts, such as equities.
Bitcoin’s value increased by a whopping 75 percent in just four months, but should gold traders be concerned?
Should Crypto’s Resilient Structure and Increasing Value Be a Matter of Concern for Gold Investors?
The most notable finding of JP Morgan’s report was that crypto’s value didn’t diverge significantly from its initial rates, even during the darkest market period in March. However, it still doesn’t eliminate the fact that Bitcoin has remained a risky speculative investment.
On the other hand, gold has always remained the first choice of panic-stricken investors during the worst financial and economic breakdowns in global history.
The above chart shows that after the last global recession in 2008, gold was the only market that kept thriving. It landed at an astounding year-high of $1,227.50 in 2009—a rise of 24 percent in a year when stocks,employment rate, and the economy were crashing.
Gold valuation has followed a similar trend during the COVID-19 market breakdown, and the outlook remains bullish.
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