The turmoil that rocked financial markets in March also wreaked havoc on the value of Bitcoin, delivering one of the cryptocurrency’s worst months on record.
Investors rushed out of riskier assets amid the coronavirus pandemic that is casting a shadow on global growth prospects, with Bitcoin losing about 25 per cent in March to trade below $6,500 (Dh23,874).
That puts the digital currency on track for its worst month since November 2018 and also marks seven out of nine months that its value has fallen. Since June, the cryptocurrency has only been in the green in October and January.
The sell-off dented the notion that Bitcoin would act as a haven during times of upheaval.
As stocks and metals plunged at paces not seen in decades, digital currencies were also hammered in the sprint to liquidate virtually all assets and hold cash.
“Bitcoin is a highly speculative instrument so in such risk-averse markets, it’s naturally a front-runner to be offloaded,” said Craig Erlam, senior market analyst at Oanda.
“If anyone was holding it as part of a portfolio, then I would imagine it would also be high on the list of positions to close out to cover margin calls or losses elsewhere.”
Cryptocurrencies were hit hard as markets around the world buckled and some analysts predicted that the economic fallout from measures introduced to contain the coronavirus pandemic could tip the US economy into a recession that rivals the worst in modern history.
The spreading virus is also expected to force the global economy into a protracted retreat, with many economists losing hope for a strong bounce-back once measures are lifted.
Bitcoin’s peer tokens were also sold off during the month, with Litecoin dropping in value by about 35 per cent and XRP losing 25 per cent. Ether was among the hardest hit, falling more than 40 per cent.
Last month, Bitcoin also shed more than 27 per cent on March 12 in its biggest one-day loss in nearly seven years.
The token witnessed an average daily move of 5.8 per cent in March, according to data compiled by Bloomberg. That compares with swings of 1.6 per cent for the price of gold, which is traditionally thought of as a haven.
“The volatility is largely due to the fact that it’s quite new and adoption rates are unstable, which leads to large levels of speculation,” Mati Greenspan, founder of Quantum Economics, wrote in a note.
“For me, a measure of success would be to see Bitcoin remain on a slow but steady incline, rather than zooming towards the moon due to global uncertainty.”
However, some cryptocurrency fans are looking to Bitcoin’s coming halving in May – a planned reduction in rewards miners receive for validating transactions.
Bitcoin rallied in the run-up to the last halving in 2016, sparking optimism that the same thing will happen this time around.
“While the recent downturn has been a consequence of a global black-swan event, we believe these headwinds for digital assets are short-term,” said Matthew Dibb, co-founder and chief operating officer of Stack, an institutional-grade digital asset platform in Asia.
“The Bitcoin halving on May 13 will provide yet another catalyst for a push towards $15,000 for Bitcoin by 2021.”
Mr Erlam from Oanda said volatile environments can provide opportunities, but Bitcoin will have to prove its worth in the current market.
“It could be a turning point. I’m just not sure exactly what that would be.”
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