The stock market crash of March 2020 had a huge impact on the economy and investors everywhere – but its impact on digital currencies such as bitcoin (BTC) has been less widely reported.
In this report, we explore how the coronavirus-induced global market crash has influenced BTC’s price and industry sentiment, before offering a brief overview of the central challenges facing digital currency investors today.
We then conclude with an analysis of possible BTC investment strategies in the months ahead.
Peter Thiel’s fund wound down 8-year bitcoin bet before market crash
When the global pandemic hit, it brought with it tremendous economic uncertainty. This caused a market crash that impacted the prices of many financial assets, including bitcoin.
This article will examine how Peter Thiel’s fund wound down his 8-year bitcoin bet before the market crash. We’ll also explore how this decision has impacted the price of bitcoin following the crash.
The rise of bitcoin
The market crash of 2008 marked a pivotal point in modern finance, raising uncomfortable questions about the financial system. One of the noteworthy products of this disruption was the development of cryptocurrency. Bitcoin was initially released as an open source software in 2009 and introduced a revolutionary new way to transfer value without government sanction or oversight.
Bitcoin is infinitely divisible and can be transferred between accounts outside traditional banking networks with little friction or cost. In its early days, it was possible to purchase fractions of a coin for just pennies, but its popularity quickly gestated and pushed prices higher. For example, a party buying one bitcoin in July 2010 would have paid just $0.08; by December 2017, the same coin had grown to around $20,000 per unit — an increase of 24 million percent in seven years.
The cryptocurrency boom saw many investors fueling rocket-like growth with little concern for market fundamentals. As a result, most were unprepared for the near-vertical drop that accompanied bitcoin’s crash back down to earth in late 2018-19. But even after reaching multiples times its all-time highs at several points between 2011 – 2017, advocates keep pushing Bitcoin as a viable store of value. They want to usher it into mainstream use through regulated exchanges, tokenization platforms and international payments systems such as RippleNet.
Peter Thiel’s fund wound down 8-year bitcoin bet before market crash
According to reports, Peter Thiel’s venture fund took profits on its bitcoin investments in April 2019. The move marks the end of the firm’s eight-year bet on cryptocurrency, which began in 2012.
The move came just months before the global pandemic sent the stock market spiraling into a bear market – sending many digital assets like Bitcoin, Ethereum and other altcoins tumbling with it. According to Reuters, which reported on Thiel’s fund unwinding its positions in Bitcoin, the venture capital firm reportedly significantly returned from its bitcoin investments during that timeframe.
Before the crypto asset crash in March 2020, as part of his fund’s portfolio allocations for startups, Peter Thiel had allocated about $20M in Bitcoin since 2012. This was before when large players such as MicroStrategy and Square started investing portions of their corporate treasuries into BTC. Since then, these large institutional investors have played an important role in driving demand for bitcoin and paving the way for other institutional investors to add crypto assets to their investment portfolios.
Despite pre-empting what some referred to as “Black Thursday” by winding down his fund’s investments ahead of time, Peter Thiel appears not completely out of touch with state of the market and still sees value in cryptos for those who take a long-term view: “I do think that people should be very careful about cryptocurrencies and data mining or what’s sometimes called artificial intelligence,” he said on CNBC earlier this year.
Impact of the market crash on bitcoin
The global stock market crash in March of 2020 has significantly impacted the investments of many individuals and businesses, including one of the world’s most iconic venture capitalists, Peter Thiel.
Thiel’s fund had wound down its 8-year bitcoin bet just weeks before the crash, signaling the potential vulnerability of bitcoin in the face of the economic recession.
In this article, we’ll assess the impacts of the market crash on bitcoin and the strategies investors can use to protect their investments from volatility.
The impact of the market crash on cryptocurrency adoption has been heavily scrutinized. Bitcoin, in particular, has long been known for its volatile price movements and high degree of unpredictability. When markets decline, investors that have invested in risky assets such as bitcoin may reduce their holdings to protect against more losses. As a result of these actions, the overall liquidity of bitcoin and other cryptocurrencies decreases substantially during market downturns.
Additionally, when there is heightened selling pressure from traders seeking to mitigate losses or capitalize on short-term opportunities, it can lead to increased demand for Bitcoin or other cryptos as traders turn to them as hedges against traditional assets with less volatility. This can cause large fluctuations in the price of bitcoin. When traditional assets are down significantly, traders may flee towards crypto markets instead in search of positive returns.
Due to these supply-and-demand dynamics and other external factors such as news headlines, crypto prices tend to be highly volatile during market turmoil. As such, investors should watch how these asset classes respond to large swings in the markets and try to maintain a diversified portfolio including both traditional investment products and digital assets like Bitcoin.
Decrease in demand
The recent market decrease has had a clear impact on bitcoin. According to experts, the decline in demand is primarily caused by global fears regarding the pandemic and greater uncertainty about the future of our economy. This has led investors to turn away from risky investments such as cryptocurrencies, leading to a decline in demand for bitcoin.
Analysts have identified three key ways the slowdown has affected bitcoin: liquidity, volatility, and trust. The decrease in liquidity has led to narrowing spreads between buyers and sellers, further discouraging market participation and reducing demand. This reduced liquidity has also resulted in higher levels of price volatility with more extreme highs and lows being seen than usual as traders take advantage of the market swings they can exploit. In contrast, prices remain volatile during this period.
Moreover, there is also a loss of trust among traders who may be less willing to purchase digital assets due to the uncertainty surrounding them. While many have touted the potential for long-term success for cryptocurrency investments, these downturns are typically seen as risky even by those with an interest or understanding of blockchain or digital assets technology due to lacking knowledge or insights into their short-term performance prospects over these market shifts.
Difficulty in trading
The coronavirus pandemic has had a major impact on the global financial markets including the stock, bond and cryptocurrency markets. Bitcoin, the world’s first and most popular digital currency, has been hit especially hard. It has experienced huge swings in its market value in recent months, so there’s been difficulty in trading the asset.
What happens to bitcoin when there is a market crash? Generally speaking, when the stock and bond markets experience a steep decline, bitcoin also falls in value. This is largely because it is another risky asset that investors dump during uncertain times. As investors brace for impact or sell off their assets for safety reasons or liquidity issues, they also tend to liquidate their bitcoin holdings as it can be difficult to trade in a volatile market environment.
There is increased volatility with bitcoin values on days of market drops and decreased liquidity. As other assets are sold off and volumes shrink significantly, trading bitcoin becomes much riskier than usual due to its low liquidity level caused by lack of buyers at lower prices whereas sellers flood onto the market with offers of discounted coins. Therefore even if you may be able to find purchasing opportunities at good prices you may not be able to find suitable buyers on an illiquid market with reduced volumes as well as a risk that your currency won’t increase its value even after some years due to increased competition from other digital currencies like Ethereum, Litecoin etcetera.
While it can be difficult (and often too risky) to leverage against current economic uncertainty through investments in cryptocurrencies such as Bitcoin during uncertain times like these, experienced traders will take note of opportunities where they can purchase promising currencies at lower prices and then hold those coins for longer periods where greater earnings potential exists after stabilization takes place when markets start moving up again.
The current market conditions have taken a toll on bitcoin and many other major cryptocurrencies. While it’s impossible to predict exactly how the prices of these digital currencies will be affected in the future, certain factors can be used to conclude what is likely to happen.
Firstly, the recent market crash has wiped out billions of dollars in cryptocurrency market capitalization and affected everyone involved, regardless of their investment size. Bitcoin has continued to remain volatile since the onset of the collapse. Still, bull markets will likely appear once decentralization begins taking hold within the industry and global economies start recovering.
Furthermore, there will likely be less investment within the space as people feel more uncertain and risk-averse regarding their financial decisions. This could lead to reduced liquidity in cryptocurrency markets or even stagnant prices until investor confidence is restored.
Overall, while it is difficult to predict what will happen with cryptocurrency prices in light of the current economic conditions, careful analysis from several different perspectives can help people make wise choices when entering or exiting positions within this growing industry.