Bitcoin Deflects Coronavirus Crisis, Soars 72 Percent in Semester

RIO DE JANEIRO, BRAZIL – Despite the perception that Bitcoin is unrelated to the other players in the financial market, the world’s largest cryptocurrency was unable to escape the panic that struck investors in March when the novel coronavirus pandemic exploded. But the crisis was short-lived.

Starting in 2020, continuing last year’s uptrend, Bitcoin in dollars rose by more than 30 percent in January alone, recording its best first month of the year since 2013. But that good mood gave way to great stress from traditional markets as Covid-19 began to spread around the world.

That led the cryptocurrency to drop 25 percent in March, from US$9,100 to a minimum of US$4,500 at the height of the chaos, following the wave of sales in all asset classes. However, moving away from other markets, Bitcoin rebounded very quickly and by late April had already recovered to its pre-panic level.

And despite being virtually stable since then, with this rebound, the cryptocurrency was among the best performing assets in the first half of this year, accruing 26.85 percent appreciation. In Brazil, due also to the 35 percent surge of the dollar against the real, Bitcoin performed even better, rising 72 percent to R$49,900.

According to some analysts, this may just be the beginning of a sharper upswing.

That is due to a significant event that occurred four years ago and again in May, halving. With a 50 percent cut in the miners’ reward, there was a major shock in the supply of new bitcoins in the market, which tends to create an upward pressure on prices.

Notwithstanding, it typically takes a while for the impacts of this pressure to show in the market. Historically, Bitcoin takes about 12 months to climb after halving. The last time this occurred, between 2016 and 2017, the cryptocurrency hit its historic high of US$20,000.

“Everyone in the market was expecting that post-halving would not have immediate impact on the price. It typically takes a few months, maybe another semester for things to adjust and a new price level is established,” said Thiago Cesar, CEO of Transfero Swiss AG.

Safiri Felix, CEO of the Brazilian Association of Cryptoeconomy (ABCripto), points out that halving was the main factor for the swift rebound of Bitcoin, but agrees that the upward impacts on price should take a little longer: “Now the price is lateralized, with a certain difficulty to overcome the US$10,000 threshold, something that I believe should happen soon considering the flow of recent weeks,” says Safiri.

He also points out the low level of instability of the past few days, which could signal that a sharper movement should happen soon. “The movement tends to be positive. In my opinion, I believe that once this trend consolidates, the cryptocurrency will exceed US$10,000. With the inflow, if it is maintained as it is, it should continue to increase in value,” he explains.

For his part, Cesar believes that the fact that the price has been “on the sidelines” in recent weeks is still the result of an asset pricing issue at this time of pandemic: “people are still cautious about the traditional financial market. It is still a time of inflection, of watching to understand where we are headed.”

The two experts also stress a good moment for the Bitcoin, which has earned greater market legitimacy as a whole, proving to be an alternative investment and much compared to gold.

In this scenario, the increased volume of funding in exchanges around the world stand out, while in Brazil the recent cryptocurrency funds also showed a good inflow of investors. Large hedge funds are also expected to join the market. Last month, manager Paul Tudor Jones reported that he placed almost two percent of his portfolio of about US$20 billion in Bitcoin.

“The outlook is quite positive, the market has demonstrated strength, which comes as a surprise, in the sense that in a moment of risk off, it is reacting well to all this,” says Safiri, who sees the cryptocurrency returning to its historic highs this year and in Brazil reaching the R$100,000 mark.

While Cesar, stressing the injection of liquidity from central banks and disputes such as the trade war between the US and China, also sees a good uptrend for Bitcoin which, in his view, could see the US$15,000 to US$ 20,000 level as its “new normal”.

Source: InfoMoney