Bitcoin and cryptocurrencies not safe havens? Too early to say

Credit: Miloslav Hamrik – Pixabay

Like the traditional financial market, cryptocurrency prices collapsed in the wake of the coronavirus, shattering the concept of safe investment. At least that’s the short-term analysis.

A parallel is often drawn between gold and some cryptocurrencies, in the forefront of which the Bitcoin. Financial analysts had observed a correlation between the price of gold and that of Bitcoin a few months earlier.

Conclusion: these assets could claim the status of safe investment. The global crisis due to the coronavirus epidemic questions this conviction, however. The press specializing in cryptos has made this observation.

At the start of the crisis, even the gold fell

" The bitcoins are not a safe haven. But neither is gold right now "title for example Decrypt. In the traditional economic press, questioning is also topical here: hangover of Bitcoin and missed exam of safe investment.

For Francois-Xavier Thoorens, CEO of the French blockchain startup Ark Ecosystem, it is advisable however to beware of short-term and clear conclusions. A safe haven? “Not at the time of the crisis. Even the gold goes down. In fact, in 2008, in the midst of the subprime crisis, this was already the case with gold. So it might as well be said that the gold failed its safe haven review, "said the expert.

For Vincent Ganne, analyst on Cryptaut and sales manager at TradingView France, "the BTC sees itself as a long-term investment " This position is shared by the leader ofArk, who believes that the quality or not of safe haven will be appreciated "when the panic stops. "

Before speaking of "failure" or "missed exam", he considers a longer term analysis. This fall would firstly be the consequence of a major liquidity crisis, with sales of cryptocurrencies aiming to recover dollars and euros.

Exchanges that have become pools of liquidity

Moreover, notes Francois-Xavier Thoorens, the exchange platforms "Have become a kind of large reservoir of liquidity, without any comparison of course with the equity markets".

The fall would be explained by the sales made by institutional investors looking for cash – as in the commodities and gold markets.

This market practice has been observed for example in iExec and ChainLink with a liquidation "of the entire USDT order book, truly to recover dollars. The injection of liquidity into the economy, through the Fed and the ECB, could alleviate this need for liquidity.

A key stabilization (down immediately, however) from cryptocurrency prices. This remains a hypothesis. But it is only after the panic has passed, and if there is sufficient liquidity, that it will then be possible to disqualify or not the crypto-assets as safe haven values.

For Ark's boss, it is nevertheless advisable to learn a first lesson from this crisis:

We congratulated ourselves a lot in 2018 on the arrival of first institutional funds in the cryptocurrency. The consequence is a divestment to meet their need for cash. The fall in prices is therefore also a counterpart to the institutionalization of investment in cryptocurrency, "he said.

Disappearances of crypto players, not cryptocurrency

He also wishes to recall that these technologies remain recent and that the players in this market are still young. Today, they are facing their first real crisis with the coronavirus. There is also the question of mining and profitability.

The halving is double-edged. If the price is not high enough, the miners will no longer be profitable. It is not impossible that miners go bankrupt and have to stop their activity, "said the expert.

For its part, Ark Ecosystem does not say it is worried about its own sustainability in this context, thanks to sufficient funding for the coming years.

We anticipated that the crypto world would face a lot of storms due to the ecosystem itself or due to exogenous causes, "said its CEO.

The latter further considers that the crisis could contribute to cleaning up the landscape, with the disappearance of projects and "experts of all kinds", for the benefit of "those who work hard to get out of the ordinary".

Francois-Xavier Thoorens therefore declares himself "optimistic for the future of crypto and Ark. We will be among the survivors, that's for sure. "