bitcoin

What to Make of Bitcoin During COVID-19

by Josh Biggs in Blockchain on 5th August 2020

When it became clear earlier this year that we were facing a worldwide economic crisis, bitcoin instantly became one of the most fascinating valuable assets in the world. This is because for years before 2020, those who support bitcoin have propped it up as a modern safe haven. This is a term sometimes used to describe assets that will retain their value or even gain value in difficult economic times. And 2020 presented bitcoin with its first real opportunity to prove that this was a fair assumption.

Why Would Bitcoin Be a Safe Haven?

When writing about bitcoin fundamentals in the past, we pointed out that there are no precious metals to back bitcoin’s value. Rather, “the usefulness of a single bitcoin rests in the bitcoin itself.” This speaks to the idea that bitcoin really is a decentralized and unbacked asset.

Generally, some might see this as a risk factor, or view it as one of the reasons that the price of bitcoin is often volatile. In an economic crisis though, the fact that no external store of value or company determines bitcoin’s value is a positive. There is no foundational bitcoin company to crash as a result of the pandemic; there is no national financial system to tank its price. Bitcoin, instead, is worth simply what the market decides it’s worth, and thus at least has the chance to stay standing when other assets fall.

What About the Halvening?

When assessing bitcoin and its safe-haven status in light of the events of 2020, it’s important to also acknowledge that the cryptocurrency was involved in another major event this year. Known as a halving, or “halvening,” this was an event through which the amount of bitcoin mined at any one time was reduced by 50%. It was a planned development that has happened in the past at certain intervals of bitcoin production — and in the past, it has had a positive effect on the price.

For this reason, we saw bitcoin predictions last year indicating an expectation that the price would rise specifically as a result of the halvening. All this means is that we need to consider this event as well when assessing how bitcoin has performed during COVID-19.

How Has Bitcoin Fared?

The answer to how bitcoin has fared in the time of COVID-19 is, in a word, well. In the beginning, when the outbreak expanded beyond East Asia and the U.S. economic crash occurred, bitcoin lost value alongside virtually everything else. Throughout the summer though, the bitcoin trading charts indicate clear positive trends. The price maintained a strong value with fairly little volatility through June and July, and more recently spiked to nearly $12,000. It’s come down marginally, but is still well above the $10,000 mark — a strong mark for bitcoin.

So – Is it a Safe Haven?

Because of the halvening, it’s difficult to say with certainty whether or not bitcoin has operated as a safe haven. On the one hand, some have chalked up the strong summer to investors looking for safe stores of wealth. A recent news report out of the UK specifically remarked on the cryptocurrency’s performance as a safe haven as the reason that its value had soared. On the other hand, as mentioned, some had already predicted price gains as a result of the halvening — meaning some of what we’re seeing may be due to that event rather than the pandemic.

At the very least, we can say with certainty that bitcoin has had a strong summer. Either it has done so because of the halvening (and in the process shown the strength to resist the economic crash), or the strength has been driven in part by investors seeking financial safety.

Categories: Blockchain