What Happens To Bitcoin If Stocks Continue to Plummet?

At the time of this writing, Bitcoin’s price is hovering around $8,000 USD. Meanwhile the last two weeks have seen the S&P 500 dip 10%, the worst decline since the 2008 Global Financial Crisis. The S&P 500 is an index fund representing the average value of the most valuable companies in the United States. It’s widely viewed as the most accurate measure of how well the broader investment market is doing.

With coronavirus sweeping through the world, and the fear that accompanies it impacting investing markets and government interest rates around the world, it begs the question, what will happen to Bitcoin if the stock market continues to plummet?
There’s a case to be made that Bitcoin will actually plummet too, despite the fact that many investors view digital gold as a safe haven investment, much like old school investors treat actual physical gold.

The reality is that the price of Bitcoin is dipping. It’s down 20% since the beginning of February.

Why Isn’t The Bitcoin Halving Event Propping Up The Price?

The reality is, broader market conditions might be impacting Bitcoin much more than its fundamental value will maintain in the long run. One of the fundamental principles that governs that value is the idea of supply and demand. This coming May, the number of bitcoins miners receive as a reward cuts down from 12.5 BTC to 6.25 BTC.

In theory, this should cause the value of Bitcoin to go up, but investors need to keep in mind that a 50% drop in freshly minted coins means it’s 50% more expensive/less profitable than before. This inherently means that investors and Bitcoin businesses alike shouldn’t count on the halving event to see through their investing journey and reap the rewards.

So What Will Happen If Stocks Keep Dropping?

Nearly all markets are tied together in some capacity. While the popular belief is that investing in gold is a hedge against the rest of the market, the reality is that investors pull money out of the market whenever they are in fear. That’s why billionaire investor Warren Buffet’s famous quotes ring true. One in particular stands out above them all. “Be fearful when others are greedy and be greedy when others are fearful.”

This is not just what investors are doing with stocks, they’re doing it with crypto markets too. That’s why Bitcoin is down more than 20% over the last six or seven weeks.

Bitcoin won’t necessarily go up because of a decrease in supply or because it’s a good hedge against other investing markets that are dropping. At least not in the short term.

Is The Price of Bitcoin Tied to Coronavirus Fears?

Although Bitcoin and the stock market at large are dipping because of coronavirus fears, worries of a worldwide pandemic aren’t the only reason that the price is moving sideways while slanting to the downside. The reality is there are other reasons for the decrease. Prior to coronavirus taking the world by storm this year, the price of Bitcoin and other cryptocurrencies increased by as much as 50% or more since the beginning of December 2019. Given that, the truth is that Bitcoin’s technical indicators have been showing that digital gold is in a long-term overbought trend.

While some experts are still betting on an immediate bull run, a bearish trend remains likely.

So What Is An Investor To Do?

At the end of the day, any asset class faces the music when it comes to uncertain economic conditions. Bitcoin investors should always have a long-term strategy in place that includes some degree of diversification and involves a commitment to risk management, regardless of the mix of assets they’re investing in or the allocation of the assets.

Jack Choros

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