Bitcoin Surges, Giving Hope and Fears to Investors

On Thursday, Bitcoin price leaped 18.57% to stay at $9,388.30, signaling hope in the wake of COVID-19 pandemic that has plunged the gains of the cryptocurrency giant. The entire market capitalization rose to $35.3 billion in the last 24 hours, the highest since March 7.

Cryptocurrency has followed other markets to succumb to the oppression of the global health crisis, disappointing investors who counted on it to save them from the economic trouble.

In March, over $26 billion was wiped off the cryptocurrency market in 24 hours, and Bitcoin lost 10% at the same time following the 30% plunge of international oil benchmark Brent crude futures to $31.02 per barrel.

The crash in cryptocurrency prices in March dashed the hope of rebound that many investors had entertained. But market players believed that although the market indicators were pointing downwards, it offered the opportunity to purchase more coins.

Jehan Chu, co-founder of Kenetic Capital, an investor in blockchain startups told CNBC that the digital currency has become known for its volatility but it presents an opportunity to long term investors.

“For those who have long term investment horizons, bitcoin is absolutely a buy during these dips. We can expect more of this volatility sparked by macro health and financial shocks, but ultimately long term investments in the digital future and its key asset bitcoin will be a winning strategy,” he said.

Thursday’s price rise in the digital currency market sprang a surprise that has been attributed to central bank monetary policy and bitcoin halving. Almost every central bank in the world has introduced a stimulus package in an effort to boost economic stability against the shocks emanating from the outbreak of coronavirus.

There is also an intervention fund for businesses as countries push to avoid massive layoffs. These are believed to be the stimulation of the sudden turn around. Vijay Ayyar, head of business development at crypto exchange Luno said it’s as a result of the US central bank pledge to keep interest rate at zero until the economy bounces back.

“My sense is that overall markets are not reflecting reality on the ground though, but this is also the result of Fed in the U.S. being extremely clear that they will do anything to make sure there is economic stability. We could be seeing a lot of money flowing into equities and crypto as well, as a result of the new money printing,” he said.

On the other hand, bitcoin halving, where the rewards for bitcoin miners are cut in half has been instrumental to the Thursday growth according to experts. Currently, the reward of bitcoin miners stands at 12.5, but as a procedure, the rewards are halved every few years to help cut inflation and keep the market performance stable. The reward is expected to be halved once again to 6.25 by May, which will reduce the current inflation from 3.76% to 1.8%.

Mathew Dibb, cofounder of Stack, a bitcoin index fund provider said the upcoming halving event has contributed to the rebound of cryptocurrency.

“While part of this rebound may be explained by a renewed ‘risk-on’ attitude of global investors, it is also clear that bulls have been triggered by the upcoming halving event and the anticipated appreciation in value in the wake of it. For those buying into bitcoin now, many see this as an opportunity to buy BTC at bargain basement rates before a price pop post halving,” he said.

One clear message from the fluctuating performance of bitcoin is that digital currency is functioning dependently on the world basic economy, and cannot operate independently.

Crypto analyst Josh Rager warns that bitcoin is tightly correlated to the stock market and could retreat if equities suffer another pull back.

“Bitcoin will continue to follow along the stock market S&P 500 mini-futures. BTC will continue to go strong as long as stocks continue to push to 3,000 and above. The $8.600 level broke with ease but do want to see how the daily closes, if this area holds with $9,000 in sight,” he said.

The concern for investors who are throwing money into bitcoin is whether it is going to fall below the current price following the market trends. With many governments running out of bailout funds for businesses, and the oil market still on its knees as a result of closed businesses, if the COVID-19 pandemic is not contained soon, it will mean that businesses will have nothing to fall back on – and cryptocurrency will lose the gains it has made as a result of government intervention funds.