How were Bitcoin performance during the pandemic? We have the data.
Much has been said about Bitcoin (BTC)'s ability to serve as a safe haven for investors looking to hedge against their basket of investments in conventional assets, especially with central bank money printers around the world going "brr, brr, brrrrrrrr".
To add to this, the ongoing coronavirus disease (COVID-19) pandemic has placed an even larger spotlight on digital currencies and alternative assets such as Bitcoin performance and other cryptocurrencies, thus prompting institutional and retail investors alike to take a closer look at the benefits (and potential pitfalls) of investing in cryptocurrencies.
In this article, we'll take a look at:
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Perhaps you're reading this after the pandemic has long concluded, or perhaps you were simply too young to fully grasp the sequence of events at the time, or maybe you'd like a recap of the pandemic so far --- if so, here are a few points for some context on the COVID-19 pandemic:
According to the World Health Organisation (WHO), the organisation registered 100,000 confirmed COVID-19 cases in 100 countries around the world on March 8, 2020.
"If you can find something that goes up in the biggest crisis in a century, you should have some of that in your portfolio." --- Dan Morehead, Pantera Capital
Source: Coinbase
At the time of writing on 5 June 2020, Bitcoin (BTC) is valued at US$9,809.13 according to market data.
This translates to a roughly
Not bad at all, notwithstanding how Bitcoin prices reached a high of US$10,367.53 in mid-February. It is no wonder that even sophisticated institutional investors are enthusiastic about Bitcoin's long-term growth potential.
Indeed, Bitcoin's market capitalisation has seen a 5574.14% increase in the last five years according to CoinMarketCap data --- rising from US$3.175 billion in June 2015 to US$180.155 billion in June 2020.
"So what the hell does a millennial do to save for your future, when almost all assets have negative imputed returns for the next 20 years, 10 years? And the answer is well, you take the optionality of cryptocurrency and Bitcoin," Raoul Pal, former hedge fund manager
Here are our findings based on MarketWatch's year-to-date (YTD) data.
| Market | YTD (as of 5 June 2020) |
|---|---|
| Bitcoin | 36.97% |
| US markets | |
| Dow | -7.91% |
| S&P 500 | -3.67% |
| Nasdaq | 7.17% |
| NYSE | -11.69% |
| Gold | 12.60% |
| Silver | 0.17% |
| Oil | -38.20% |
| European and Asian markets | |
| FTSE 100 | -14.96% |
| Global Dow | -10.75% |
| Asia Dow | -9.51% |
| Nikkei 225 | -3.35% |
| Hang Seng | -12.13% |
| Shanghai | -3.91% |
| Singapore | -14.54% |
| Fiat money | |
| Euro | 0.94% |
| British Pound | -4.79% |
| Australian Dollar | -0.70% |
| Malaysian Ringgit | -4.14% |
| Nigerian Naira | -5.52% |
| Other cryptocurrencies | |
| Ethereum (ETH) | 90.58% |
| Ripple (XRP) | 7.29% |
| Bitcoin Cash (BCH) | 28.15% |
| Litecoin (LTC) | 16.05% |
| Monero (XMR) | 54.55% |
Let's take a moment to unpack the data above. Here, we can see that the value of Bitcoin has risen by almost 37% since the beginning of 2020. Not too shabby especially when compared to other traditional assets, such as the
Not to mention commodities such as crude oil, which caused jaws to drop when its benchmark price in the US plunged below zero for the first time in history.
With oil prices hovering around US$38 per barrel at the time of writing, one unit of Bitcoin would allow us to buy 258 barrels of crude oil. If a currency's ultimate value lies in its purchasing power, then Bitcoin is certainly holding its own against conventional assets.
"Bitcoin is behaving as a store of value much the same as king dollar is behaving as a store of value," Paul Brodsky, Pantera Capital
There are many things that make Bitcoin valuable. For a more thorough understanding of how Bitcoin performance is valued and what makes it valuable, check out this article.
If anything, the COVID-19 pandemic has laid bare the flaws and fragility of our current monetary system. Here are a few reasons investors are still investing in Bitcoin during the pandemic:
In theory, when a central bank injects trillions into circulation, the increase in money supply will cause a decrease in purchasing power of the said currency.
Central banks and governments around the world can print as much money as they want, and right now, they're injecting trillions of dollars to support their economies (and for good reason).
And since monetary theory dictates that the more there is of something, the less valuable it is, economists believe that the value of government-issued currencies will fall in the long term due to the sharp increase in circulation worldwide.
As such, investors are looking to Bitcoin and other cryptocurrencies as a hedge against inflation. Why Bitcoin? Because Bitcoin is a deflationary asset, i.e. its supply decreases over time. Unlike conventional currencies like the US dollar, we know how many Bitcoins will ever be minted (21 million) --- this is hard-coded into Bitcoin's protocol and cannot be changed.
Hedge fund magnate Paul Tudor Jones of the US$38 billion Tudor Investment Corp, who is known for correctly predicting the 1987 stock market crash, agrees with this view. According to him, he has parked 1-2% of his assets in Bitcoin because the coin reminds him of the role gold played in the 1970s as a hedge against inflation.
"If I am forced to forecast, my bet is it will be Bitcoin... The most compelling argument for owning bitcoin is the coming digitization of currency everywhere, accelerated by Covid-19." --- Paul Tudor Jones
Cryptocurrency and digital payments enthusiasts have long been bullish about the potential of digital currencies --- and for good reasons too.
For one, printing money and maintaining the cash ecosystem costs money, and these costs have also risen through the years in step with the rise of labour costs and commodity prices. It is, therefore, no surprise that governments, banks and businesses have been pushing for the adoption of digital payments and e-wallets in recent years.
And now, more than anything, the COVID-19 pandemic has accelerated our transition to digital payments --- in part because people have no choice but to make payments digitally during the lockdown, and in part, because digital payments help us avoid the need to use physical cash and credit cards (which subsequently helps us avoid spreading unwanted microorganisms like the COVID-19 virus through these physical instruments).
But there are a few downsides to digital payments in their current form, especially when compared to cryptocurrencies. Presently, digital payment systems advocated by governments and businesses alike transact using fiat money (conventional currencies), which transact on payment systems owned by banks, businesses and other payment service providers.
As such, these entities have all the data on your transactions, and they know exactly what you've been up to, where you've been, what you like, and so on.
Enter cryptocurrencies (also commonly referred to as digital currencies or virtual currencies). Let's use Bitcoin as an example. Unlike conventional digital payments,
"One thing that makes bitcoin distinct as an asset is this idea of a sort of privacy censorship-resistant means of making payments that aren't necessarily allowed by authorities.... thinking about how we are tracked and monitored in the post-crisis period could create new narratives in which there is, I think, more potential for people to see the value in a monetary system or payment system that works outside of the official channels." --- Joe Weisenthal, Bloomberg editor
While critics are often quick to pounce on Bitcoin's occasional price drop or point out that the coin, like other assets, also experiences its fair share of volatility, there is no denying that Bitcoin performance was extraordinarily well so far throughout the COVID-19 pandemic.
Even with the occasional dips, Bitcoin's value has grown by a whopping 36.97% since the beginning of the year as shown in the table above --- faring far better than most (if not all) traditional assets.
If anything, the uncertainty resulting from the ongoing pandemic, trade wars, and local politics has pushed investors to turn to alternative assets such as Bitcoin that does not rely on cash flows or government intervention.
Think about it: stock markets rise and fall dramatically as governments announce stimulus packages and cash handouts, while commodities such as oil are dependent on oil-producing countries, public consumption, and many more factors. Meanwhile, Bitcoin performance marches to the beat of its own drum.
"If your entire investment thesis for owning stocks and bonds requires this much intervention just to survive, shouldn't every debt and equity investor at least be willing to listen to alternative thought processes?" --- Arca Funds
Will the COVID-19 pandemic be the turning point for Bitcoin and other cryptocurrencies? Only time will tell. But if the Chinese government's recent announcement of its own digital currency is any indication, we have a feeling that Bitcoin's journey has only just begun.
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Disclaimer: The content in this article is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice.
