This is why Bitcoin may be immune to the global stock market crisis


One of the reasons behind Bitcoin (Bitcoin) Volatility, that is, a large number of price fluctuations that occur regularly, is the difference in its use cases. Some experts consider it to be “digital gold”, a truly scarce and perfect store of value (SoV). Others think that Bitcoin is a technological project or a software with a corresponding network.

The adoption of El Salvador as a legal tender may prove the MoE function provided by the Lightning Network. The layer 2 scaling solution allows for instant and extremely cheap transmission, although it requires regular on-chain transactions to enter or exit this parallel network.

As these narratives about Bitcoin have changed over time, the relevance of BTC and traditional assets has also changed. For example, there was a strong correlation with gold for a while.

2020 Bitcoin and gold (precious metal) comparison. Source: TradingView

The March 2020 crash was devastating for almost all asset classes, but the recovery pattern after those six or seven months is almost the same for gold and Bitcoin. Curiously, the opposite movement occurred in 2021, showing a negative correlation between the two assets.

Is Bitcoin an agent for technology stocks?

On the other hand, as measured by the Hang Seng Index (HSI), Bitcoin began to imitate the Hong Kong stock market. Its main constituent stocks include Tencent, Alibaba and Meituan, which are multi-billion-dollar Asian technology companies.

Bitcoin and Hang Seng Index (stocks). Source: TradingView

This shift in investor perspective — from tracking gold prices to technology stocks — raises the question of whether Bitcoin will succumb to the Hang Seng decline of the past 90 days. Does decoupling make sense now? If so, will Bitcoin continue to act as a safe haven in a general pullback?

On September 14, China’s second largest real estate developer, Evergrande Group, Announcing a significant drop in sales forced the company to postpone debt repayment. The company’s liabilities exceed US$300 billion, which, according to analysts, may severely affect the broader market.

In August, China’s retail sales increased by 2.5% year-on-year, and investors expected a 7%, which was disappointing. Obviously, the government’s response to the Covid-19 outbreak has severely affected growth and the economy in 2020.

However, it must be taken into account that since the first quarter of 2020, the most influential central bank has been implementing a policy of close to zero or even negative interest rates. Therefore, if the economy fails to gain momentum in the trillion-dollar stimulus plan, then not many do so to prevent widespread stock market adjustments and potential losses in the debt market.

The problem is: Bitcoin may have a history of 12 years, but it has never faced a major economic crisis, at least not putting the global debt market of more than 250 trillion US dollars at risk. Therefore, no analysis or estimation can produce a credible assessment.

Bitcoin may be less affected by the market crash

However, cryptocurrencies have advantages over traditional markets such as commercial real estate, stocks and bonds. If the customer defaults on the payment, the lender will cancel the redemption rights of these assets, which will further increase the pressure because the bank or institution has no interest in retaining these assets.

On the other hand, in general, Bitcoin and cryptocurrencies cannot be used as collateral.

Regarding the clearing of billions of dollars of bitcoin futures in the derivatives market, these are just synthetic tools. There is no doubt that these events will affect prices, but at the end of the day, valid BTC will remain on the derivatives exchange. It only transfers the balance from the long (buyer) to the short (seller) account.

Before Bitcoin fully enters the financial market and is accepted as collateral and deposits, the medium-term systemic risk of cryptocurrency is lower than that of the traditional market.

The views and opinions expressed here only represent author It does not necessarily reflect the views of Cointelegraph. Every investment and transaction involves risks. When making a decision, you should conduct your own research.