Extreme turmoil continues to grip the financial markets and the COVID-19 pandemic has already initiated drastic revisions in U.S. corporate earnings.
For traditional investors, this has created massive problems because there is simply no way to determine the extent to which our current global economic lockdown will impact share valuations going forward.
Within this context of uncertainty, investors need to find safe-haven assets that are truly protective in nature. Historically, this might mean increasing assets in precious metals like gold, silver, or platinum. But, while this strategy may prove to have some protective benefits, sluggish performances have been generated in these markets for most of the last decade.
Bitcoin’s safe-haven status has been called into question in recent months, as certain instances of volatility have worked against cryptocurrencies and benefited more traditional assets. However, negative assessments of the crypto space miss the truly dynamic nature of the financial markets.
Remember, the “laws of finance” are not the same as the laws of physics. Just because an event doesn’t occur 100% of the time does not mean it isn’t indicative of a dominant trend. As investors, all we can reasonably hope to accomplish is to capture most of the market’s dominant trend in any single position.
Now that market valuations in BTC/USD have fallen below $7,000, investors should be viewing recent events as a new buying opportunity. One of the most common criticisms made against cryptocurrencies is the fact that the sector is unable to generate earnings on its own. Of course, traditional investors are typically known to seek out “earnings power” whenever possible.
However, this appears to be one set of circumstances where the inability to generate earnings might actually be a good thing. While essentially every other aspect of the global market has been called into question with the potential for unprecedented vulnerability, digital currency assets remain essentially untouched.
All of these events have created an important question for investors: Are cryptocurrencies immune from the virus? While the global pandemic has led to initial declines in the market’s valuation of BTC/USD, it could be argued that all of this short-term volatility has been overly erratic in nature.
If this is the case, it’s only a matter of time before cryptocurrencies move back toward their long-term highs.
Of course, we all know that you can’t eat gold or build a house out of shares of AT&T stock. You can, however, use bitcoin to make a direct purchase of essential items. These are advantages that are not shared by most other asset classes, and this could be enough to generate safe haven excitement for the cryptocurrency space in the months ahead.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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