It was just another Monday in the notoriously volatile cryptocurrency markets, which stay open 24 hours a day, seven days a week.
“We're not the ones uncomfortable with the volatility today,” said Ricky Li, co-founder and head of Americas at Altonomy, a cryptocurrency-focused proprietary trading firm.
Prices for bitcoin (BTC) slid by 2.9 percent to about $7,800 as of 16:48 UTC (12:48 p.m. Eastern Time) Monday. That decline was less than half the 7 percent plunge in the Standard & Poor’s 500 Index of large U.S. stocks, a drop so fierce it tripped market “circuit breakers,” temporarily halting trading under exchange rules designed to help limit investor losses.
The latest sell-off in stocks left the S&P 500 down about 18 percent since its record high on Feb. 19. Since then, bitcoin has fallen by about the same percentage. Yet, on a year-to-date basis, bitcoin is still up about 8.6 percent, in contrast with a 7.7 percent loss so far in 2020 for the S&P 500.
Meanwhile, the CBOE Volatility Index (the "VIX"), a measure of implied volatility on the S&P 500, is trading at its highest levels since the financial crisis. Sometimes called the "Fear Index" by traders, the VIX measures the S&P index's expected volatility in the coming weeks and usually rises when the market expects stocks to fall.
"Few assets are safe when a 'black swan' event such as the coronavirus takes hold of the markets on a global scale," Connor Abendschein, a research analyst for Digital Assets Data, said in an e-mail. "Bitcoin may find its footing and shine further down the road during this financial crisis."
One clear takeaway Monday was that as traditional markets undergo a level of anxiety not seen since the 2008 recession, the cryptocurrency industry showed few existential signs of distress.
In fact, bitcoin’s “hash rate” — a gauge of the amount of computing power working to confirm data blocks on the underlying blockchain network — was holding steady at around 122 exhashes, or quintillion hashes, per second, according to Blockchain.com. That’s roughly double where it stood in mid-2019.
Denis Vinokourov, head of research at the London-based digital-asset firm Bequant, said he was seeing interest in new loans from borrowers who have become more bullish on bitcoin following the recent price drop.
He spent a good portion of Sunday morning trading WhatsApp messages with one client who wanted a loan denominated in stablecoins, digital tokens whose value is linked to a government-issued currency like the U.S. dollar. The borrower wanted to use the loan to buy new computers for data processing on the network, known as bitcoin mining because the rewards are paid out in units of the cryptocurrency.
“We're not seeing any change in sentiment,” Vinokourov said. “There's no mining capitulation.”
TradeBlock, a digital-asset analysis firm based in New York, wrote Monday in a blog post that the average daily price swings in the S&P 500 recently surpassed those for bitcoin. According to the firm, that hasn’t happened since October 2018.
Steep gains and losses are nothing new to cryptocurrency traders; indeed, bitcoin naysayers from traditional finance have consistently mocked the notion that bitcoin could ever serve as a “safe haven," or reliable store of value similar to gold or U.S. Treasury bonds.
Bitcoin’s price jumped 13-fold over the course of 2017, only to tumble by 73 percent in 2018. Last year, it rose 94 percent, roughly triple the gains charted by the S&P 500.
Vladimir Cohen, an over-the-counter broker, said he knew of clients who had taken advantage of a price rally in bitcoin earlier this year “to get rid of such a volatile and unpredictable asset.”
Konstantin Plavnik, chief operating officer of the Moscow-based crypto derivatives exchange Xena, said bitcoin’s recent sell-off in synch with stocks might be a bullish sign — bitcoin is “becoming a more effective, full-fledged part of the global financial markets.”
“Bitcoin is a speculative asset, and during the crisis, investors switch to cash," Plavnik said.
Prices for gold, seen by many big investors as a traditional store of value in times of economic and market distress, are up about 10 percent this year — roughly on par with bitcoin’s 2020 gains.
U.S. government bonds, another asset category long considered a reliable safe haven, have also rallied, with yields on the 10-year note declining by 0.2 percentage point to a record low of 0.51 percent. Bond yields move in the opposite direction of prices.
Yin Shao, co-founder of the trading firm Reciprocity in New York, said he didn’t see anything too notable in bitcoin’s price movement Monday — or any unusual business activity.
“The folks that we generally trade with are not terribly connected to or in tune with what's going on in traditional markets,” Shao said.
U.S. stocks tumbled even amid signs government authorities are moving quickly to provide economic support and fresh liquidity injections for ailing markets.
The U.S. central bank’s New York branch on Monday offered to pump more cash into distressed markets, increasing one overnight lending program for Wall Street dealers by 50 percent to $150 billion. Futures traders on the Chicago Mercantile Exchange have upped bets the Federal Reserve will soon make a steep cut in interest rates for the second time this month to support the economy.
Bloomberg News reported that Trump administration officials are drafting measures to blunt the economic impact, beyond the $7.8 billion emergency spending bill passed last week.
Bitcoin, launched in the wake of the 2008 crisis by coders as a new type of money theoretically free from government control, has no such safety net, which serves as a dampener on market volatility.
Zac Prince, CEO of BlockFi, a cryptocurrency lender and vendor, said it’s typical for big crypto traders to borrow more bitcoin during times of heightened volatility — to place transactions designed to capture profits from price dislocations.
“When things move, there's more stuff for them to do,” Prince said. “I wouldn't say we're seeing anything particularly different from the way things usually work.”
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