After an unprecedented global crisis in which the financial markets were severely shaken, what was the impact of this crisis on cryptocurrencies and are they an alternative to the financial markets?
The first piece of advice that is given to any investor is to diversify their assets. You don’t put all your eggs in one basket! The goal is to have decorrelated assets so that not everyone follows the same curve.
Regardless of the type of investment, stocks, cryptocurrencies or safe havens such as gold, we can expect high volatility. Bitcoin, for example, rose very high before falling and then rose again, but it is still very far from its absolute record. The objective of this article is not to compare the volatility of such or such type of assets or to analyze their level of risk, a loss of capital is in any case possible on both, but to look at how behaved financial markets and cryptocurrencies during this period of crisis. We will also compare with the price of gold, the safe haven by definition.
Cryptocurrency: a new safe haven?
These three graphs teach us several things. The first is that during a global crisis, the main values fall, whether they are correlated or not. We see an overall fall on the day of March 12, 2020. As a reminder, it was on this same day that the world markets panicked, the main indices – including the Dow Jones Industrial Average, American flagship index – all plunging closely by 10%, a dark day for the entire world financial center.
What is more interesting is to see what happened after this fall and how the various prices reacted and whether it was wise to buy bitcoin during this period.
We can clearly see that gold, a safe haven par excellence, rose sharply from the following days and quickly exceeded its initial pre-crisis value throughout the period of uncertainty, reaching its highest point on the day of April 14.
The CAC40, for its part, after its sharp fall of almost 30%, remained for a long time in a period of uncertainty before making a strong recovery like all European markets from May 18 and the joint announcement of French President Emmanuel Macron and German Chancellor Angela Merkel.
As for Bitcoin, we can observe that from the beginning of May, it regained its highest level like most of the main cryptocurrencies, Ethereum recording even a higher increase than its competitors. This clearly shows us that investors, even in times of crisis, continue to trust cryptocurrencies as an investment medium, even a new safe haven!