- Financial markets around the globe have experienced several hits caused by the coronavirus, while bitcoin and other cryptocurrencies have been promoted as resilient to inflation.
- Being a decentralised network, having a fixed supply and not having a central authority are some of the advantages that make bitcoin a good investment during uncertain events.
- Since the beginning of this year, bitcoin increased by 24% in its value, encouraging investors and institutions to convert traditional assets into digital assets.
- As per a survey, 80% of 800 European and American institutional investors stated that they find the idea of digital assets appealing.
COVID-19 has brought many fiat currencies into trouble, resulting in disturbed financial markets. For this reason, investors find cryptocurrencies more attractive during unprecedent times, as cryptos do not behave as fiat currencies in the market.
Now more than ever, investors are looking for ways to secure their assets while macro happenings hit the global economy. During COVID-19, cryptocurrencies have been advertised as an inflation-free, as GDPs around the world have been shrinking.
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As most of the other cryptocurrencies, bitcoin is a decentralised platform and has no central authority that controls the bitcoin supply. On the contrary – bitcoin has a fixed supply (21 million bitcoins) that is controlled and operated by math-savvy miners.
Miners are motivated for the complex work because they get rewards for each bitcoin that gets mined in the system. Around every four years, their bitcoin awards decrease – May 2020 was the last such event, when the reward was reduced.
However, bitcoin seems to be a good investment during unpredictable times because it has almost no correlation to the regular markets, like gold. In a situation where the global institutions experience a downfall, bitcoin is not likely to have the same destiny.
But, after taking everything into consideration, is it clever to invest into bitcoin during these times?
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Many investors spend their money towards bitcoin and cryptos because they believe their value will increase in the upcoming period.
The numbers appeared to be good amid pandemic, as bitcoin rose by 24%, while the S&P 500 index decreased by 7% (as on 29 June 2020). Due to the increase in bitcoin value, some investors decided to put a big proportion of their wealth into this cryptocurrency.
As per an investor Paul Tudor Jones, trust in bitcoin will only go up with every day of its existence. Reportedly, Jones now has 2% of his total income in bitcoin.
Another reason why investors chose bitcoin during the pandemic was for building their portfolio. After the pandemic occurred, previous Goldman Sachs Fund Manager Raoul Pal shifted 25% of his portfolio into bitcoin. It also seems like institutions are fancying the idea of digital assets even more.
On the other hand, some experts argue that bitcoin is not a haven for investors. According to a research, bitcoin’s worth has decreased in investors’ portfolio. They argue that a small change in a bitcoin value can drastically decrease the value of the whole portfolio, particularly in lockstep with S&P 500 index.
According to the survey organised by Fidelity, a financial planner and adviser, 80% of 800 institutional investors that participated had stated that digital assets look promising. The survey was conducted within firms in Europe and the United States and has also discovered that a third of those investors had already invested their money into digital markets.
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Even though the survey was held from November last year to March this year, bitcoin is still seen as a pretty good hedge during the unprecedent times, especially when taking unconventional economic policies from central banks into account.
Due to this reason, investors needed to find a safe net for their income in digital assets, Fidelity Digital Assets, Director of Research, Ria Bhutoria stated that more American investors are respective owners of digital assets – 27% hold digital assets as of this year compared to 2019 when 22% of investors had digital possessions.
However, there are some obstacles that could cause a short interest in digital assets. Price volatility, the lack of first principles and market misuse are some of the digital assets’ characteristics that could potentially decrease the macro interest in this market.
Overall, bitcoin has seen a big growth this year, despite the pandemic. The cryptocurrency was at its highest level in August, worth A$17,057.81 per one bitcoin. The lowest level recorded this year was in March, A$7,741 for one bitcoin. As of 15 September 2020, at the time of writing, one bitcoin is worth A$14,760.7