The madness of the financial markets does not stop. Amid panic at the dangers of a second wave of coronavirusInvestors – and ordinary people – seek to make all kinds of predictions to know what to do with their money considering that it is worth less and less due to inflationary policies.
Investing and saving are the two options that come to mind. But since in most cases the returns on savings accounts are less than the rate of inflation, the most obvious option left on the table is to invest … But in what?
When it comes to investing, there is one fundamental rule to keep in mind: The greater the possibility of return, the greater the risk that is run. And that risk implies a loss of money as well as purchasing power, which is why greater care is necessary.
The dark episode of COVID-19
When the cases of COVID-19, he panic in the markets it caused one of the biggest drops in the largest financial indices. The Nasdaq, the SP500, the Bovespa, the Ibex, the Nikkei; none were saved … and Bitcoin did not escape that Black march, with the most important fall of the year.
Why? Basically investors realized that a border closure, a quarantine that limits the production capacity of companies and social benefits policies could slow down the markets and generate losses in the industries: If there is no one to sell to, there are no profits .
At that time, Bitcoin was highly correlated with the SP500. However, after the pandemic, the token started to stop being seen as an investment and was seen as a good protection… Then began the era of correlation with gold.
Why did gold triumph where stocks failed? Basically because of the shortage. Saving does not make sense because inflation “kills” purchasing powerInvesting is difficult because markets are losing money. Then it is necessary to acquire goods whose value is maintained over time no matter what happens in the markets, and both gold like bitcoin they fulfill that function.
How will markets react once the Covid-19 pandemic dissipates?
A very common question from the market is what will happen in the future when COVID-19 is brought under control? This question has been the subject of debate.
Assuming a scenario Other things being equal (everything remains the same except the coronavirus variable) is the value of the hedging assets is very likely to decline as investors will look again generate money instead of just protecting it.
In this case, probably would sell Bitcoin, gold or silver to invest in the stocks of healthcare companies that would undoubtedly benefit from the sale of the vaccine, or perhaps they would invest in other industries that would be revived.
But would that imply a “crash” of the bitcoin or gold markets? Probably not. The recently implemented monetary policies They have taken it upon themselves to ensure that asset protection is still important.
And from the point of view of cryptocurrencies, At 10 years of life, Bitcoin has proven to perform very well with two relatively contradictory natures: Investment and protection.
The Dual Nature of the Economy: Is It “Bitcoin VS Gold” or Should It Be “Bitcoin and Gold”?
In economics there are two types of fundamental relations of goods: Two goods are substitutes when one is acquired because the other loses attractiveness, for example: in summer, the purchase of bikinis increases because the purchase of sweaters decreases, while they will be complementary when the increase of one increases the value of the other, for example an increase in the rate of smokers will probably increase the consumption of lighters.
In this case, in a bear market, Bitcoin and gold are complementary. It seeks to counteract the risk of one by opening a position with the other. However, in a market the relationship of Bitcoin and the stock market takes on this nature. For its part, the relationship of the stock market and hedging assets how gold tends to be substitute.
For this reason, Bitcoin has a malleable nature and it may not be entirely fair to put it into some category as it does not fully emulate any other asset in the world..
Bitcoin beyond COVID-19
The economy is not perfect and there are many variables. Perhaps the global crisis was not caused by the coronavirus but simply was catalyzed for this. If things are like this, then a COVID care it will not change the situation, it will simply make the fall smoother.
What happens when the vaccine is confirmed? Bitcoin’s gold and silver will CRASH. Buying opportunity. Real problem is NOT the pandemic. The real problem: massive US debt. Bankrupt USA. $ 28 of debt on the balance sheet. $ 120 trillion of off-balance sheet social obligations. Gold, silver, and Bitcoin are the best long-term investments.
And in this case, Bitcoin would be great for riding the wave and cushioning the subsequent drop in case governments don’t decide to change the gist of their policies..