When will the crypto market recover?
Bitcoin after the corona crash: recovery faster than the stock market
Bitcoin and other crypto assets lost around 50% in value on March 12th. The largest one-day decline since 2013. This decline was accompanied by a downturn in financial markets. The S&P 500 and DOW Jones lost almost 10% in value. This represents the highest one-day decline since the crash on Black Monday 1987. However, the crypto market has seen strong growth since then.
Leverage trading accelerated crash
But how did this rapid crash come about? Asset managers held leverage positions, which were closed by the rapid fall in prices and exacerbated the fall. In traditional markets, the leverage is limited to 2-3x. In contrast, there are exchanges in the crypto market that offer a leverage of 100x +. We conclude that leverage positions on March 12th had a significant impact on the crypto markets. We forecast that this dynamic will steadily improve with increasing market maturity and regulation.
Historically, the downturn in the crypto market is less relevant
From our analysis of the historical volatility of BTC and S&P 500, it emerged that recent BTC movements were less relevant. If the historical volatility is analyzed, the -7.6% fall in the price of the S&P 500 on March 9, equates to -41% for BTC. However, Bitcoin only recorded -5%.
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This supports the thesis that BTC does not correlate with the stock market (neither positive nor negative). The volatility of the S&P 500 is at a 5-year high, yet well below that of Bitcoin.
Correlation remains insignificant
We compared BTC and the S&P 500 (red graph) and saw an increased correlation during the March crash. This has been put into perspective again and no correlation can be determined over the entire period (1 year in the graph).
On the other hand, there is a clear positive price correlation between the DAX and the S&P 500 (green graph). In summary, it can be said that the crypto market develops independently of the stock market.
Crypto platforms are seeing user growth and increased activity
Meanwhile, crypto exchanges are reporting greatly increased user activity, registrations and cash inflow. Coinbase, one of the largest retail trading platforms, posted a five-fold increase in deposits of $ 1.3 billion after the March 12 crash. In addition, a six-fold increase in trading volume (relative to the average of the last 12 months).
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Other exchanges such as Kraken, Okex, Bitfinex, Paxful, Luna as well as the Austrian Bitpanda exchange and the German Bison exchange also reported significantly increased numbers.
Bitcoin is becoming a high performer and increasingly attractive for investors
Bitcoin was one of the top performers in 2019, with an annual performance of over 87%. In comparison, the S&P 500 only recorded a performance of around 29%. The asset is characterized by its lack of correlation to the stock market and its outstanding performance.
This reflects the constantly increasing interest in Bitcoin as an investment vehicle. Grayscale, one of the best-known Bitcoin trusts, is recording steady growth with currently around USD 2 billion in AUM. Bitcoin, along with Apple and Testla, is one of the most popular assets of millennials, who will have the majority of the world's disposable income by 2029.
About the authors
This article was written by the founders of the Viennese startup Coinpanion: Alexander Valtingojer (CEO), Matthias Zandanel (CTO), Aaron Penn (Lead Developer) and Saad J. Wohlgenannt (CMO). Coinpanion is the first AI-optimized asset manager for crypto assets such as Bitcoin and Ethereum and enables you to benefit from this new market without prior knowledge.
Disclaimer: This text as well as the notes and information do not constitute investment advice or a recommendation to buy or sell securities or other assets. They are for personal information only and only reflect the opinion of the author. No recommendation is made for a specific investment strategy. The contents of derbrutkasten.com are aimed exclusively at natural persons.
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