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Corona and the crypto crash

by | 23 Apr 2020

If you are new to the market of crypto currencies, the volatility of the market can be very challenging for you.

Due to the Corona Pandemic, the markets experienced an enormous price collapse within a very short time at the beginning of March.

Of course, new investors in this market are now scared and there is uncertainty.

But it is important to understand that volatility and the crypto-market go hand in hand.

Take the largest crypto currency Bitcoin as an example.

In 2017, for example, Bitcoin has experienced five corrections of minus 30% or more.

We have seen “crashes” of 34%, 33%, 39%, 40% and 30%.

And all this within just one year.

By comparison, the US stock market has not experienced a crash of 30% or more for almost a decade before Corona.

If we take the entire history of Bitcoin, we can see that large corrections are absolutely normal.

– In 2011, Bitcoin has fallen by 93

– In 2013, Bitcoin has fallen by 70

– And over the years 2014 and 2015, Bitcoin fell by a total of 86 %.

It is advisable not to focus too much on the daily price movements, but to focus on the long-term, big picture.

What are the medium to long-term advantages of crypto currencies?

One of the biggest obstacles for large institutions such as banks, finance companies, insurance companies and pension funds to enter the crypto market has been overcome.

The previous obstacle for entry was the secure and regulated storage and protection of assets.

Such large institutions need a third party they can trust to keep their clients’ assets safe.

There are now regulated and accredited investment vehicles in the cryptomarket. Futures and options from Bitcoin are traded on the Chicago Stock Exchange, for example. And banks have legal security to be allowed to store crypto currencies.

Last week, the US government began sending stimulus checks to eligible US citizens. Data suggests that some US citizens may have actually bought crypto-currency with their $1,200 coronavirus stimulus checks. The more uncertainty there is in connection with national currencies, the more people are looking for an alternative that cannot be multiplied at will. This is Bitcoin.

Added to this is the Bitcoin halving in May 2020, which halves the block reward to only 6.25 BTC. This will reduce the rate of increase of Bitcoin to 1.7% per year.

The Stock-To-Flow model (S2F) – a forecasting model that relates the current amount in circulation (stock) to the rate of increase (flow) in order to draw conclusions about the price development of an asset – calculates a similar shortage for Bitcoin after the halving as gold.

This can make Bitcoin a serious, independent store of value.