At the end of an unprecedented global crisis where the financial markets were strongly shaken, what was the impact of this crisis on cryptocurrencies and are they an alternative to the financial markets?
The first piece of advice given to any investor is to diversify their assets. You don’t put all your eggs in one basket! The objective is to have decorrelated assets so that not all follow the same curve.
Regardless of the type of investment, stocks, cryptocurrencies or safe havens such as gold, we can expect high volatility. Bitcoin, for example, rose very high before falling and then rose again but it is still very far from its absolute record. The objective of this article is not to compare the volatility of a particular type of asset or to analyze their level of risk, a loss of capital is in any case possible on both, but to look at how the financial markets and cryptocurrencies behaved during this time of crisis. We will also compare with the price of gold, the safe haven by definition.
The cryptocurrency: a new safe haven?
These three graphs tell us several things. The first is that during a global crisis, major stocks fall, whether they are correlated or not. We see a global fall on the day of March 12, 2020. As a reminder, it was on this same day that the world markets panicked, the main indices – including the Dow Jones Industrial Average, flagship American index – all plunging nearly 10%, a dark day for the entire world financial center.
What is more interesting is to see what happened after this fall and how the different prices reacted and if it was wise toat this time.
We can see that the, a safe haven par excellence, rose sharply in the following days and quickly exceeded its initial pre-crisis value throughout the period of uncertainty, reaching its highest point on April 14.
The CAC40, for its part, after its sharp fall of nearly 30%, remained for a long time in a period of uncertainty before making a strong rise like all the European markets from May 18 and the joint announcement of the French President Emmanuel Macron and German Chancellor Angela Merkel.
As for Bitcoin, we can observe that from the beginning of May, it returned to its highest level like most of the major cryptocurrencies, with Ethereum even recording a greater increase than its competitors. This clearly shows us that investors, even in times of crisis, continue to trustas an investment support, or even a new safe haven!
What you must remember
- This global health and financial crisis has therefore allowed us to see the behavior of cryptocurrencies in times of uncertainty and to see that they are increasingly becoming an alternative to financial markets for investors.
- It should nevertheless be remembered that all these investment vehicles represent a risk of capital loss and that the best advice is diversification.