Global markets have entered a period of increased volatility and bearish sentiment, ever since the Coronavirus situation worsened. Today we will look and measure Corona’s effects on Bitcoin, the Stock market (S&P 500), and Gold. We will analyze these effects using both technical and fundamental analysis. In the next blog, we will give showcase signs which may indicate that the markets are starting to recover.

Corona and its effects On Bitcoin

Technical Analysis:

Let’s start by looking at our main point of interest: Bitcoin. Bitcoin started its bearish downtrend around February 11th to 13th. However, this started very slowly and it can be seen more like a small correction phase after a bullish uptrend of more than 65%. The small correction phase consisted of a drop of less than 10% from its highs to its lows before the asset regained some of its value.

The First Major Drop came on February 19th, where the price fell almost 10% in only 4 hours. This was around the same time, in which the stock market started its descent. After an initial recovery, the price would continue to drop to more than 15% from February 19th. A consolidation phase followed from February 27th until March 7th.

The Second Major Drop came on March 7th and wiped out 16% of BTC’s value in less than two days. After a very brief consolidation period, the market crash followed. The market crash wiped out more than half of BTC’s value bringing the price down from 8,000$ to less than 4,000$ in a little over a day. This was one of the worst crashes in the coin’s history. In total Bitcoin’s value decreased by around 65% in the respective time period.

A volatile ranging period followed where the price made a new high around 7,000$ but failed to make a higher high as of the writing of this blog. A lower low was also not made. The figure below displays all of the events we have studied earlier:

Corona and it's effect on the bitcoin market

Fundamentals:

Although some people view Bitcoin as gold and believe that the coin should increase as the stock market falls, many people do not. Many corporations and investment funds still view Bitcoin as a volatile asset that has a great risk associated with it. As such, they are more inclined to sell their Cryptocurrencies when the general market is in a recession.

Retail investors also have many reasons to sell their Cryptocurrency assets during a general recession. Many people tend to panic during crises, which leads to large market crashes. Many countries also imposed a quarantine in order to stop the virus from spreading further. This has led many people to become unemployed or reliant on the government for financial support. These people would thus need to withdraw their funds from Bitcoin and the cryptocurrency market in order to sustain themselves.

On the Stock Market (S&P 500):

Technical Analysis:

The stock market also experienced a major crash in the same time period losing more than 35% of its value from its highs to its lows. Unlike Bitcoin, it did this in a more stable and linear fashion. It can be said that the market lost its value in two phases:

The first phase: Took place between February 19th and 28th. This was the shorter and milder of the two, with the market losing 16% of its value in a little over a week.

The second phase: Took place between March 4th and 22nd. This was the longer and more violent of the two, with the market losing 30% (double than the last phase) in 18 days. The figure below displays the two market phases mentioned earlier:

Corona and it's effect on the stock market

Fundamentals:

The stock market has even more reasons to fall as a result of fundamentals than Bitcoin. The main and most obvious reason for the stock market to fall is that many companies are currently closed or keeping their operations to a minimum due to the quarantine. Some of the hardest-hit sectors are airlines, automobiles, hotels, restaurants. Many other sectors not producing food or pharmaceuticals have also been hit hard as a result of the crises and quarantine.

Although some companies are generally perceived to be very stable with good fundamentals, many conservative investors would prefer to hold cash or gold (we will get to this soon) during a crisis. Some hedge funds may even short the market and make a profit in the short term.

For the retail investor generally, the same concept applies, many people panic, others need the funds in order to run their day to day life, while others simply believe that the market will fall lower and are waiting for the right time to enter.

The recent recovery in the market can be attributed to the actions taken by the Federal Reserve and Donald Trump. The Federal Reserve cut interest rates by a full 1% and announced a 700$ billion quantitative easing in order to help out the economy. However, the market still did not turn around at the news. The market only started to turn around after Trump signed a $2.2 trillion economic rescue package after it was approved by the Congress. This rescue package aims to support businesses, rush resources to overburdened health care providers and help struggling families amid the crisis.

On Gold:

Technical Analysis:

Gold has been in an uptrend since November 2019. When the Coronavirus caused the Bitcoin and the stock market to fall, gold continued its uptrend until the 24th of February when it made highs of 1,692$. The price then took a sharp 4-day correction which ended on February 28th at the support level from September 2019 (the same day as the stock market’s first correction and a day after Bitcoin’s fall). The price then rebounded and just about made new highs, before a major 15% crash which saw all of the gains since November 2019 wiped out. The price then had another run-up to the highs of 2020 before dropping to the old support level of September 2019. What is important to note here, is that out of all of the assets mentioned in this blog, gold held its support level the best. As such if the current support level holds, then it is very likely that Gold will re-test 1,700$ soon. The first chart displays all of the ideas that we have discussed previously; while the second chart gives a more “zoomed out” view of this.

Corona and it's effect on the gold market Corona and it's effect on the gold market

Fundamentals:

Generally, many people tend to believe that Gold is a safe haven and its price always increases in a recession or a crisis. Unfortunately, this is not always true. Although gold has performed better than any of the assets we have mentioned in this blog, it was far from a safe haven. There are different reasons as to why this happened;

we will cover three of them:

Investors feared that the crises will impact the demand for gold and raw materials in general. If the economy is on halt due to the quarantine then, the demand for raw materials will decline. Gold is also not an essential good, as such there will be less demand in this situation from the average consumers. A number of traders sold their Gold positions in order to offset their losses in the stock market and elsewhere and to rebalance their portfolios. Leveraged traders with large losses in the stock market would need to give up their gold positions as well in order to provide the needed margin liquidity. There is a general fear among investors, that central banks will sell off some of their gold reserves in order to help out their economies. This is very plausible as many countries including the US invested large amounts into the economy in order to ease the situation.

Conclusion

Markets tend to be very volatile during a crisis and there are more opportunities now than before. The cryptocurrency market is no exception to that. With the right strategy and risk management, you can profit now more than ever. However, different indicators serve different purposes in trading and their usability varies with market conditions. When there are long swings, trend-following indicators tend to work very well. When the price is ranging like at the current moment, momentum oscillators such as the RSI, or Williams % tend to work very well. On Cryptohopper, we have a wide range of indicators that you can combine to create an appropriate strategy for each of the market scenarios.

In the next blog, we will explore how you can predict when the markets are on their way to recovery and what to watch for in order to determine that for each market. We will do this by using technical analysis as well as other real-world data!