Bitcoin Just Failed the Coronavirus Test

Bitcoin has taken investors on a roller-coaster ride, and although its value has risen dramatically since its inception more than a decade ago, it’s had plenty of huge downdrafts along the way. The latest plunge in bitcoin, though, comes at a time when many would’ve thought the cryptocurrency would be most likely to soar: in the wake of the global COVID-19 pandemic.

On Thursday, bitcoin suffered its worst one-day drop in years, falling from $7,600 to $5,300. The price of the popular cryptocurrency approached $4,000 at moments on Thursday night. Shares of the bitcoin-tracking Grayscale Bitcoin Trust (OTC:GBTC) followed suit. With the price of bitcoin having been above $10,000 as recently as mid-February, the question many crypto investors have is why the token’s price failed to deliver on its promise as a safe-haven asset in times of turmoil in the traditional financial system.

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How the coronavirus infected bitcoin’s investment thesis

For a long time, cryptocurrency advocates have argued that tokens are ideal safe havens from the uncertainties of the broader financial markets. With a fixed supply and strict rules for releasing new tokens onto the market, bitcoin arguably isn’t subject to the same manipulation that central banks and government entities can use with their fiat currencies. In past events that have caused strain on the financial markets, bitcoin and other cryptocurrencies have typically seen their prices rise. Moves like the Federal Reserve’s injection of liquidity into the credit markets on Thursday certainly seemed to be the sort of thing that would usually inspire bitcoin investors to get more bullish.

In that light, the coronavirus-inspired plunge in bitcoin prices seems anomalous. Yet the knee-jerk explanation from many financial experts…

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