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Institutions and Bitcoin Price, Safe Haven Status

The sharp drop in Bitcoin’s price as global market saw a decline on Thursday March 12 has been tied to institutional investors in the space.

Bitcoin developer, Jimmy Song, dubbed the Bitcoin price crash “a flip side” of institutions buying Bitcoin while Kim Dotcom praised institutional investors dropping out of Bitcoin as good saying “crypto needs more users, not more speculators.” Bitcoin educator, Andreas Antonopoulos, added that while these investors are needed, they “bring with them increased volatility and correlation (emotional) to other markets.”

The price drop raised doubts within the crypto space that Bitcoin is not immune to market forces and not an uncorrelated asset designed to thrive in a crisis, prompting suggestions on the need to re-evaluate beliefs held all along. The argument also revived the debate over the top cryptocurrency’s safe haven status with parties torn between whether or not traders created volatility on top of Bitcoin’s base price to erode its hedge attribute.

Supporters of the safe haven argument maintain a sell-off of the volatility in Bitcoin’s price is necessary – and is supposedly underway – for its real price to emerge. They see governments’ introduction of measures to cushion the effect of the coronavirus outbreak on the global economy as critical to cryptocurrency market recovery.

From the EU – the new hotspots for the outbreak are Germany, France and Spain which reported a ten-fold increase in a week – to Canada, several measures are being introduced, including a rate cut, to support their economy. China too, added US$80 bln in liquidity support for their banking system, even though the country’s new problem as it gets back to work is a lack of customers as the rest of the world shuts down.

Another major economy struggling with the outbreak is the U.S. which is scheduled to start a two-week national emergency on Monday. The U.S. Federal Reserve announced to inject $1.5 tln into short-term lending markets over investors’ worries about coronavirus. With the emergency unclear on how far it will stretch (as it may be extended), price drops are still expected in coming days after the stock market opens on Monday and reacts to the national emergency declaration or whatever new outbreak-related development that may have cropped up with time.

Some crypto market insiders shared their views on the government stimuli which – if true to the claim that Bitcoin is a safe haven from a failed fiscal policy and not against market volatility – could feed the narrative that its true base price will grow when there is a fiat inflation. CZ tagged the $1.5 tln from the Federal Reserve an ‘airdrop’ and questioned how giving it “to bankrupting (poorly managed) banks, making us all poorer, help the economy?”

Gemini exchange’s CEO, Tyler Winklevoss, dubbed it the “funny money” while Barry Silbert, the founder/CEO of DCGco, parent of leading digital currency asset management firm, Grayscale, sees the unfolding market situation as what Bitcoin was created for. For former CIA subcontractor, Edward Snowden, the March 12 drop is his first time to feel like buying Bitcoin.

Tying the top cryptocurrency’s halving to its market’s historical data around this time last year also gives a positive outlook on what’s to come. March 12 last year, around the time the prolonged bearish crypto market was in place with no pandemic to disrupt any aspect of the global economy, Bitcoin’s price was about $3,940 with a total market cap of ~$70 bln according to Coinmarketcap data. Fast forward to this year with the coronavirus hitting hard globally into record-breaking dips, Bitcoin maintains an approximately $110 bln (as at March 12, 2020) as market cap with each coin priced at $5,400.

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