The weakening of the dollar, the DEBT of the US Federal Reserve and policy. The impact of the crisis on bitcoin

The weakening of the dollar, the DEBT of the US Federal Reserve and policy. The impact of the crisis on bitcoin

The pandemic of coronavirus has led to the deterioration of relations between the countries, the recovery of the stock market risks to break off due to the growth of infections Covid-19. What are the chances that the cryptocurrency will protect investors from uncertainty and how likely the USD rate to fall

The crisis, which began with a pandemic, immediately affected all areas of the economy. A wave of collapse followed in the markets of raw materials, stock and cryptocurrencies. Shares of Apple, Microsoft and other major companies, whose business has not been critically affected by quarantine, almost doubled in March. The stock prices of small firms fell even lower and have not yet recovered. At the same time, the rate of digital assets also collapsed. In early spring, the value of bitcoin fell by more than 50%, to $3800, even more in the price of lost altcoins such as Ethereum, XRP and most others.

By now, the situation in the markets has gradually stabilized. For example, the leading U.S. stock index, the S'amp;P 500, after the March decline to 2200 points, set a new high from February 24 at 3275. Up to the historic record of 3400 points remains 4% growth. Cryptocurrencies also played down, but did so much faster than traditional markets. For example, the price of bitcoin after the March lows fully recovered within a month and a half, and in early June came close to the annual high of $10,500.

Perhaps the recovery is temporary. The crisis in financial markets quickly gave way to political ones. The U.S. government has repeatedly accused China of involvement in the spread of the virus. This was followed by threats of reciprocal sanctions because of the Hong Kong National Security Act, which was passed at the end of June by the Standing Committee of the National People's Congress.

Now relations between the United States and Russia have begun to deteriorate. Today, July 23, U.S. Deputy Secretary of State Stephen Bigan saidthat in the current political situation, progress in relations between Moscow and Washington is "virtually impossible." As the politician explained, American sanctions are retaliatory measures against Russia's actions.

The scandal with Russia fits into the pre-election position of Donald Trump, who as the election approaches is prone to to tougher rhetoric with a number of countries, explained exante co-founder Anatoly Knyazev. He added that the disputes with China have already gone beyond trade relations, now it is about the closure of diplomatic representations in the countries. Trump is in a delicate balance as tensions escalate investors from stock markets into protective assets, though the leader's bellicose rhetoric could boost voter ratings during the race.

"Difficult economic times and social tensions, which have not been spared by the United States, often go hand in hand with the strengthening of international tensions. A thriving economy contributes to the opening of borders and international trade, while difficulties force us to look for those responsible outside, which multiplies economic problems," Knyazev said.

General Invest's partner and chief investment officer Felipe De La Rosa added that geopolitics always affects the value of assets. These include the Russian ruble. For this reason, sanctions pressure on Russia can provoke further weakening of the national currency even if the macroeconomic situation in the country stabilizes.

The impact of the crisis on bitcoin

Other risks

In addition to political tensions, fears have grown about the debts of both the US Federal Reserve and the European Central Bank. Countries are carrying out additional currency issuance to support and restore the economy. On the one hand, it protects the financial system from bankruptcies, which can hit the banking system and provoke a repeat of the events of 2008-2009.

On the other hand, "zombie companies" are formed, whose shares have repeatedly played down the March fall, despite the complete shutdown of activity and the absence of any income. These include cruise companies such as Royal Caribbean International, which is one of the leaders of the American market in the industry. The quotations of its securities in March fell below $20, in May reached $75, now are at the mark of $52. At the same time, the company, as well as its competitors, have not had flights since March, when the official ban came out. Last week, the U.S. Centers for Disease Control and Prevention extended those restrictions until September 30, Royal Caribbean officials said in the company's official blog.

For crypto investors, a new downturn in the stock market is a significant risk. Bitcoin and other coins are risky assets. Investors prefer to get rid of such in times of uncertainty. This is one of the factors that explains the correlation between the quotes of bitcoin and the index of the S'amp;P 500.

The fall in the securities market can occur in case of a sharp deterioration of the epidemic situation, Knyazev continued. In his view, now stock indices are growing against the background of monetary stimulus from governments. Inflation of the dollar, which causes fears among market participants, is also close to targeted levels.

"The primary factors that affect the U.S. economy are the lockdown against the COVID-19 in the second quarter, which led to a decline in GDP growth, the shutdown and closure of many industries and enterprises, and the rise in unemployment to record levels. In addition, the incidence is increasing, while the vaccine is still not available. The rise to 9-year highs in gold is a clear indication that investors are extremely concerned about the situation with financial stimulus of world central banks and the near future of the major economies," Knyazev said.

Felipe De La Rosa also warned of the risks of a repeat downturn in the stock market. Players are laying down expectations of the beginning of the economic recovery in the short term. Therefore, any unforeseen deterioration in socio-economic terms in the U.S. can provoke a correction not only in the U.S. stock market, but in the whole world.

Cryptocurrency as a protective asset

In April, analysts of Bloomberg published a report, which statedthat bitcoin is turning from a speculative asset into a digital version of gold. The reason for this experts called the growth of interest in futures for cryptocurrency and the decrease in the volatility of its price, despite the shock in the stock market. In June, the publication allowed the price of BTC to rise to $20,000 this year.

Knyazev believes that cryptocurrency will not help investors to keep their capital if the markets collapse again. In March, the bitcoin exchange rate repeated the fluctuations of the index of the S'amp;P 500, now this dependence has remained. In June, the correlation between assets reached 90%.

"Now, as in the beginning of March, the BTC and the S'amp;P 500 are strongly correlated and move in a co-ord. If a collapse like March's starts, the stock collapse will pull the cryptocurrency," Knyazev warned.

He noted that bitcoin may still be undervalued. This is evidenced by the difference in how much the cryptocurrency has become more expensive since the beginning of the year compared to other coins. During this period, BTC increased by 30% and Ethereum by more than 100%. A new strong drop in the crypto market is unlikely, so the main digital coin can be considered as a long-term investment.

"A deep or prolonged fall in BTC is unlikely: such a scenario would lead to a sharp decline in supply from miners and an increase in institutional demand. Therefore, it is probably worth considering the purchase of bitcoin at the current stage with an eye for a long term," the expert said.

Bitcoin in theory can claim the status of a protective asset against the depreciation of national currencies. The U.S. Federal Reserve is carrying out an additional dollar issue to support the economy, which leads to a decrease in its value. With the first cryptocurrency, such a policy is impossible: its offer is limited to 21 million coins. Moreover, every four years it becomes more difficult to extract coins thanks to halving. This makes BTC virtually inflation-free.

If we discard the risk of bitcoin falling, it could probably be used as a safe haven against a possible devaluation of the dollar. But Vitaly Kirpichev, director of trading development in Russia, suggested not to wait for the US currency to weaken. The U.S. government, despite the problems in the economy, will not allow such a scenario.

"The U.S. economy is already experiencing problems. GDP in the first quarter decreased by 5%, in the second many expect a decline of more than 30%. The lack of GDP growth means that servicing the world's largest public debt is $26.5 trillion. economic growth is not possible. Nevertheless, it is unlikely that the U.S. will go for a sharp devaluation of the national currency, it will be a strong blow to the confidence of countries that invest in government bonds. This can cause a perfect storm in the global financial market. Therefore, most likely we will see the continuation of the Fed's program on quantitative easing and the government's attempt not to slide into recession," Kirpichev suggested.

He noted that even in case of large-scale problems in the U.S. it is unlikely that the ruble will strengthen against the dollar. And yet investors fear for the future of the world economy, as evidenced by the growth of gold quotations. Since the beginning of the year, its value has increased by 23%, now it is $1880. This is close to the historic high of $1911 set in September 2011. Bitcoin is still "frozen in anticipation" and does not show such results. This can be a good opportunity to buy cryptocurrency at acceptable price levels, the expert believes.

The main trigger for the onset of the global crisis in 2020 was the coronavirus pandemic. Yesterday, July 22, U.S. President Donald Trump admittedthat the situation with Covid-19 in the country may worsen before it becomes better. At the moment, the U.S. is leading the number of detected cases of new infection with the disease. The number of infections exceeded 4 million, almost 1.2 million people recovered, 145,000. Died.


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