Has Bitcoin Made the Jump from Safe Haven to Shaky Ground?

Cryptocurrency markets have always been renowned for their high volatility. However, the fluctuations of Bitcoin in recent months demonstrate the substantial challenge posed by the coronavirus pandemic. In February, Bitcoin looked capable of providing solace to traders as mainstream markets began to slump. It seemed subsequent weeks demonstrated that descriptions of Bitcoin as 'digital gold' may have been premature. Although, there is still greater cause for optimism in the cryptocurrency than in major indices.

Bitcoin's attractiveness as a store of value, as well as its traditional lack of correlation with the global economy, inspired that description of 'digital gold'. With many investors hopeful that the crypto would provide a safe haven while markets collapsed. The early days of the coronavirus pandemic provoked greater market volatility than previous crashes. In this instance, we saw the S&P 500 fall at a much faster rate than in the equivalent period following the 1929 Great Depression, and the 2007 Great Recession.

The speed of that decline has been influenced by the sheer unpredictability of the pandemic. To mitigate that unpredictability, traders have been forced to adapt their strategies to suit these challenging conditions. The performance of Bitcoin in recent months has been characterized by dramatic swings, which has caused many investors to appreciate the advantages of trading CFDs, and those that involve speculation on a cryptocurrency's price movement in any direction.

Another advantage of trading CFDs is that exposure to a market is achieved without the trader assuming ownership of an asset, which is a distinct benefit during volatile times. Traders have used CFDs to counteract the fluctuations of cryptocurrencies, with Bitcoin's recent swings in value demonstrating the validity of such a strategy.

A roller-coaster ride for Bitcoin

With uncertainty dominating the markets in February, traders flocked to store value in Bitcoin with the confidence that they would have once invested in gold. The currency's significant February growth sparked optimism that it would withstand the coronavirus challenge. Bitcoin started 2020 trading around the $7,000 mark, but posted steady gains to reach $10,367 by mid-February.

A rise of roughly 50% vastly outperformed the S&P 500's growth of around 4% in the same period. Traders were hopeful that Bitcoin's stronger upward trajectory would be less likely to crumble as the pandemic tightened its grip on the global economy. As it turned out, all markets displayed vulnerability in March. Bitcoin tumbled from that mid-February high, to being traded at $4944.70 on 16 March, shedding around 52% of its value.

That fall included a 24% drop on 12 March, one of its worst daily performances in recent years. That's not exactly the hallmark of a safe haven, although this downward trend was matched by every major market. This suggested that Bitcoin was perhaps more correlated to mainstream markets than previously assumed.

Source: Pixabay

However, there is no evidence to suggest that the crypto cannot soar in value as the pandemic endures. Bitcoin has displayed resurgent qualities since that March nadir, climbing to $7624.85 on 26 April. A rise of $2.7k in just over a month is the type of performance that had investors treating Bitcoin as a safe haven in the first place.

A need to change investment strategies

There is no question that markets will be at risk of volatility as long as the pandemic continues, so online traders may prefer to adopt the strategy of utilizing CFDs on cryptocurrency markets. An alternative for crypto traders could be options trading. This is another form of investment that gives exposure to market movement in any direction. There is certainly little value in the traditional investment strategy of going long on company shares, as both short-term and long-term outlooks remain bleak for major stock indices.

Some investors may remain convinced by Bitcoin's potential to be a safe-haven asset that warrants a bullish position, despite the ever-changing global market conditions created by the coronavirus. While any rises in value may be undercut by subsequent sharp falls, Bitcoin still looks set to retain its position as one of the most popular and profitable digital assets.

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