Bitcoin experienced its worst plunge in March. Will the cryptocurrency bubble burst?

According to Bloomberg, the coronavirus pandemic has cast a heavy shadow on the global economy, investors have rushed to sell high-risk assets, and the turmoil in financial markets has wreaked havoc on Bitcoin, with March being one of the worst months in history for cryptocurrencies.

Bitcoin fell more than 27% on March 12, its biggest one-day drop in nearly seven years. The average daily volatility in March was 5.8%. In contrast, gold, traditionally considered a safe-haven currency, fluctuated 1.6%.

The rout negates the idea that bitcoin serves as a safe haven in times of turmoil. As stocks and precious metals plunged at a pace not seen in decades, digital currencies were forced into liquidation as people rushed to cash out whatever assets they had.

“Bitcoin is a highly speculative instrument, so it naturally bears the brunt of this risk-averse market,” said Craig Erlam, senior market analyst at Oanda. “If Bitcoin is held as part of a portfolio, it also accounts for a high percentage of the list of positions that are closed to cover margin calls or losses.”

Some analysts predict that the coronavirus crisis could cause a recession in the U.S. that would rival the worst in modern history. The spread of the virus is also set to plunge the global economy into a prolonged recession, with many economists losing hope for a strong rebound.

Other coins have also been hit this month, with Litecoin down about 35% and XRP down 25%. Ethereum is one of the hardest hit, down more than 40%. In this environment, many digital token enthusiasts have changed their views that cryptocurrencies can serve as a safe haven during market turmoil.

"The volatility is mainly because the history of digital tokens is not deep enough and the adoption rate is not stable, which leads to a lot of speculation," Mati Greenspan, founder of Quantum Economics, wrote in a report. "For me, the measure of success is that Bitcoin maintains a slow but steady upward trend, rather than surging in price due to global uncertainty."

Bitcoin's rally ahead of its last halving in 2016 has fueled optimism among some cryptocurrency enthusiasts who are looking forward to the upcoming halving in May.

"The recent global recession is the result of a black swan event, but we believe these headwinds are temporary," said Matthew Dibb, co-founder and COO of Stack, an institutional digital asset platform in Asia. "The May 13 Bitcoin halving will provide another catalyst for its rise to $15,000 before 2021."

Oanda senior analyst Erlam said the turbulent market environment provides opportunities for Bitcoin, but it must prove its value in the current environment.

Image source: Pixabay

Author:May

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