The year 2020 begun in turmoil as the coronavirus epidemic morphed from a healthcare problem to a global economic crisis. The measures instituted to combat the spread of the disease have resulted in some unprecedented problems that have badly hurt the financial sector. Travel freezes, business closures, layoffs, and global economic slowdown have translated to poor financial markets performance. Additionally, there has been a great degree of fear, uncertainty and doubt (FUD) causing various assets causing the value of various assets to plunge drastically.
The mainstream financial markets have endured a highly volatile three months since the turn of the year 2020. Various assets such as equities, securities, futures, stocks etc. have plummeted throughout the first quarter of 2020 as the coronavirus outbreak turned into a global pandemic. These losses have been effectively reflected across major market indices.
The Dow Jones Index fell by over 23% in Q1, 2020 becoming its worst first quarter performance in history. Similarly, the S&P 500 dropped by 20% in the same period. This marked the index’s worst first quarter performance ever and its biggest single quarter loss since the 2008 financial crisis.
The Nasdaq also dropped by over 14% in Q1, 2020 completing an industry wide period of poor financial performance. These losses in the mainstream financial markets have affected millions of investors across the globe further compounding the adverse effects of the coronavirus epidemic.
Consequently, investors are looking for alternative means that secure their wealth and protect the value of their investment. Such kinds of investments, normally referred to as safe haven assets are able to maintain their value or even grow during market crises.
Gold and Bitcoin have emerged as the commonly cited safe haven assets that investors can buy to shield their investments from the volatility exhibited by mainstream financial market assets. Gold has been held as a store of value for decades while Bitcoin prominence has grown over the past 10 years of its existence.
Gold’s reputation precedes it and investors have resorted to holding the previous metal as a hedge for decades and across multiple crises. This has further fueled its demand. On the other hand, Bitcoin is regarded as the future of money due to its strong fundamentals and hard coded nature.
Most importantly, both assets are quite scarce, not easily obtained and widely recognized as solid investments. These attributes are repeatedly cited in the safe haven status debate.
Gold performance over the ongoing economic crisis has been nothing short of remarkable. The asset has had an impressive performance in the first quarter of 2020. Apart from a few incidences of volatility, Gold has remained on an upward trajectory over this period. This is evidenced by the asset’s 4% rise in value in Q1, 2020.
More importantly, Gold managed to decouple its performance from that of the mainstream financial markets further cementing its status as a safe haven asset. Despite initially seeming to suffer similar fate as other risk-on assets, Gold managed to reverse its losses from the mid-March massive sell-off.
Bitcoin’s performance in the ongoing Covid19-driven economic crisis has been uncharacteristic of an acclaimed safe haven asset. The virtual asset has endured huge volatility in the first quarter of 2020 as it value plummeted drastically before quickly regaining some lost ground. At one point in mid-March, Bitcoin lost over 50% of its value due to mounting selling pressure. The massive sell-off saw close to $100 billion wiped out of the entire crypto market capitalization within 24 hours.
Despite Bitcoin caving under the huge selling pressure, it managing to reverse its fortunes by recording some substantial gains in the following weeks to close the first quarter on an upward trend. The virtual currency fared better than mainstream financial market as it lost only 10% of its value in Q1, 2020.
Irrespective of the somewhat poor performance and inability to live up to the expectations, crypto analysts and investment experts still hold that it is worthwhile to buy Bitcoin in 2020. The analysts observe that Bitcoin is a relatively new asset and that the ongoing crisis served as its first stress test. In their expert opinion, the cryptocurrency performed relatively well with its rapid reversal after the massive decline is testament to the capabilities of the asset labelled as digital gold.
Crypto analyst, Bloqport likened Bitcoin’s recent performance to that of Gold during the 2008 financial crisis in which it lost around 30% of its value before rising again to hit its peak in late 2011. Similarly, the experts and industry analysts expect Bitcoin to follow a similar trajectory and reach a new all-time high (ATH) price in the next couple of years.
Gold was not a safe haven during the 2008 crisis.
It crashed -30% ($1K to $700). Only in 2009 it began its rise to $1200.
Safe-haven assets are bought up AFTER markets bottom.
If a recession happens, watch how Bitcoin reacts thereafter, not during.
Bitcoin’s price will soar.
— Bloqport (@Bloqport) March 14, 2020
The recent occurrences have prompted financial experts to recommend that investors buy Gold and Bitcoin as the preferred instruments for storing their wealth.
Entrepreneur and financial educator, Robert Kiyosaki posted a series of tweets in which he encouraged his followers to buy Gold (God’s money) and Bitcoin (people’s money). He expressed concerns about the printing of new money as it would devalue assets in the mainstream financial markets.
DEATH OF DOLLAR. People desperate for money. Very sad. If government gives you free money take it yet spend it wisely. DO NOT SAVE. Buy gold, silver, Bitcoin. Dollar is dying. Silver $20. Best Buy for future security. Everyone can afford $20, especially with free fake money.
— therealkiyosaki (@theRealKiyosaki) April 4, 2020
Renowned TV host and strong Bitcoin advocate, Max Keiser had similar views urging people to buy into Bitcoin during a recent episode of the Keiser Report. He observed that volatility and losses in the financial markets will push people towards safe haven assets like Gold. However, Keiser warned that billionaires will likely purchase all the Gold. As such, he predicted that people would flock en masse to Bitcoin as the next best alternative.
There is a growing consensus that Gold and Bitcoin are currently the ideal investments that can shield investors from the ongoing global economic downturn. Gold has proven its ability to retain value over several decades thus staking tis claim as a safe haven asset.
On the other hand, Bitcoin has proved to be a better asset than most assets in the conventional market.
The digital asset loss that was significantly lower than most stock indices is an indication of its resilience in the midst of an economic crisis. Its ability to hold up its value during the turmoil also serves as vindication for its status as a safe haven asset. With time, Bitcoin is expected to grow in stature and mature into a widely recognized safe haven asset.
Both Gold and Bitcoin are expected to keep rising in value in the near future hence this is the right time to buy into these assets.
Image courtesy of Marco Verch on Flickr
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