Covid-19 - Could crypto be the biggest winner?

Victor Argonov, senior analyst and crypto specialist at International Investment firm, EXANTE, believes, the cryptocurrencies could ultimately benefit from the current coronavirus crisis…

We have recently seen some of the sharpest market crashes in history. From February 20 to mid-March, the key American indices have dropped by around 30 per cent, while the cryptocurrency and oil markets have dropped by more than 50 per cent. The crisis was mainly caused by the coronavirus pandemic, but the split among the OPEC+ countries that could not reach a consensus about decreasing the oil production rates was also another destabilising factor.

However, in spite of this, we see some opportunities. If the scale of the pandemic does not become absolutely catastrophic, the stock market can bring significant profits to the investors by mid-2020. In addition, a serious growth can be expected on the cryptocurrency market as well. As for the traditional safe haven assets such as gold, they seem like a less lucrative investment today, although they can help one diversify one's portfolio.

Until mid-March, the cryptocurrencies were declining along with the stocks, and the correlation between the BTC exchange rates and the S&P 500 index set a new all-time record. From February 20 to March 15, S&P 500 decreased by around 30 per cent, while BTC's price nearly halved, from about USD10000 to USD5000. However, after the announcement of the emergency measures by the Federal Reserve on 16-17 March the markets no longer correlated with each other. The correlation between S&P and BTC decreased sharply, and the cryptocurrency exchange rates began to grow despite further decrease of the indices. By March 19 BTC already cost over USD6000. Most likely, this was due to the investors' fears of the US dollar devaluing after the Federal Reserve's drastic measures.

It is still hard to say if the crypto market's recovery is going to last, but a stable positive trend is very likely to be established by April. Even if the dollar does not devalue, the BTC halving in May remains a solid argument against a crypto crash. Currently, one can make a profit mining cryptocurrencies even in countries with cheap electricity at a price of at least USD4000. In May, the block reward and the emission will halve, and the bar for profitable mining will rise to USD6000-7000. Below this price, there is going to be a serious deficit of sellers on the market. This would most likely mean that the market price of BTC is going to be no less than USD8000.

Out of all the possible assets, we have examined three – cryptocurrencies, stocks, and gold. At the moment, both cryptocurrencies and stocks can bring an investor a decent profit by November. The coronavirus is putting a serious pressure on the stock market and has accelerated the cryptocurrency crash, but all the remaining factors point to the growth of these markets in the next few months. 

For the cryptocurrencies, these are the BTC halving and the continuing increase in the number of market participants, as well as the possible devaluation of national currencies due to the leading countries printing more money. 

For the stocks, it is the zero interest rate from the Federal Reserve, and the US administration would greatly benefit from new records for the stock indices. However, an optimistic prognosis for the stock market is only possible for the moderate scenario of the pandemic, so one needs to have safe haven assets in one's portfolio, such as cryptocurrencies or gold.