Bitcoin markets have reacted with increased volatility to the news of the spreading coronavirus in China. The last few days may reveal patterns about BTC trading in relation to risk.
Bitcoin Shows New Trading Patterns on Risk Events
Bitcoin (BTC) showed behavior that may reveal new patterns of trading in relation to stocks. The coronavirus epidemic and subsequent lockdowns in China, coinciding with the Chinese New Year celebrations, caused a slump in Chinese and international stocks.
But Bitcoin prices showed a different pattern in relation to the movements of stocks, with waves of activity both coinciding with the overall slide in assets, but also rallies that suggest BTC is also a risk-averse asset.
1/ Bitcoin vs the Coronavirus
A look at reaction times and correlations to explore if bitcoin may be trading like a risk-on asset (such as stocks) or a risk-off asset (such as gold or bonds). pic.twitter.com/hVnQ4qM1ml
— Alex Krüger (@krugermacro) January 28, 2020
In January, Bitcoin gathered some data about its behavior during dramatic news events. The leading crypto coin started reacting to macro factors, sparking a lengthy commentary by markets observer Alex Kruger.
But BTC did not behave the same way as gold, which has a long-term risk-averse inverse relation to stock movements. Instead, Bitcoin charted its own path while showing it reacted to events and news.
The Iran tension and crisis in January caused the first rally of the coin above $9,000. Now, the coronavirus events unfurling are showing another propensity of BTC to rally on news of overall crisis. Bitcoin is starting to behave in ways that offset the risk of dramatic, unforeseeable events, which threaten with much more than asset price fluctuations.
BTC Becomes Attractive in Periods of Instability, Creating “Unicorn” Trading Patterns
Bitcoin has been used in multiple examples of hyperinflation and has become an alternative tool of payment and a store of value in unstable regimes. This also means that the benchmark crypto may be following another trading pattern, reacting to “unicorn” events, as Mr. Kruger suggested. While BTC does not have a predictable relationship to stocks, it can still have dramatic days to push the prices higher.
This fits the narrative of unexpected days of significant appreciation, which leads to outlandish returns that offset sluggish stocks. However, there is no telling when prices would react, and it is also possible Bitcoin slumps on unexpected news.
So far, Bitcoin has escaped the predicted fate of January lows. The recent appreciation above $9,000 created expectations of further appreciation in February, which is a traditionally strong month for BTC.
The unexpected rally by hundreds of dollars on the coronavirus news also has implications for the futures markets. The unexpected spikes mean BTC is not behaving predictably, possibly leading to the risk of fast liquidations. BTC traded at $8,988.64 on Tuesday, on volumes above $31 billion in 24 hours, stepping back from a temporary high at $9,008.
What do you think about Bitcoin’s behavior in relation to the coronavirus news? Share your thoughts in the comments section below!
Images via Shutterstock, Twitter: @krugermacro