Survived March Crisis Better That Other Assets.

Following is an interesting article by Anna Golubova that appeared in Kitco News.  It is based on a recent report by JPMorgan that evaluated the response of Bitcoin and other asset classes to the March investment crisis.  There were some observers who predicted that it would take a long time for Bitcoin to recover from its crash to below $5,000.  However, Bitcoin has clawed its way back to over $9,000 and looks to be fairly stable at that level.  Ms. Golubova notes that the JPMorgan article indicates that Bitcoin recovered from the March crash better than other asset classes.  Here’s the article as it appeared in Kitco News:

Bitcoin is here to stay: Crypto’s structure more resilient than currencies, equities, Treasuries, and gold — JPMorgan

(Kitco News) The COVID-19 market selloff in mid-March was bitcoin’s first real crash test and the cryptocurrency successfully passed it, according to the latest JPMorgan’s report, which says that bitcoin is here to stay. 

After March’s massive selloff along with all other assets, bitcoin emerged stronger than before. After dropping from $9,000 in mid-March, the cryptocurrency made up all the losses, briefly climbed to above $10,000, and was last trading at $9,416.00, up 0.76% on the day. 

After examining cryptocurrencies’ trading patterns in response to the COVID-19 crisis, JPMorgan’s strategists concluded that cryptos have “longevity as an asset class.”

But the strategists highlighted that bitcoin is more likely to be used as a speculation vehicle than a store of value.

“Price action points to their continued use more as a vehicle for speculation than medium of exchange or store of value,” wrote the bank’s strategists led by Joshua Younger and Nikolaos Panigirtzoglou in a report titled “Cryptocurrency takes its first stress test: Digital gold, pyrite, or something in between?”

There were also no major signs that the crypto traders opted for more liquid parts of the market to run to safety during the selloff. “That suggests that there is little evidence of run dynamics, or even material quality tiering among cryptocurrencies, even during the throws of the crisis in March,” the strategists wrote.

The report added that bitcoin seems to have a high correlation to riskier asset classes such as equities. 

One of the most significant finds of the report was that bitcoin’s valuation didn’t diverge much from its intrinsic levels even during the peak of the March’s selling panic, which means that it almost never traded below what it actually costs to mine bitcoin.  

The report also concluded that bitcoin’s market structure is looking more resilient than that of currencies, equities, Treasuries and gold, the bank’s strategists noted. To analyze this, JPMorgan examined the bid-offer spread of the order book, which shows liquidity. 

And the results were that even though bitcoin saw one of the biggest price drops, the recovery was much quicker than in other asset classes, the report stated. 

March’s crash test was bitcoin’s first real test in a crisis since it was developed just over a decade ago.  

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