Cryptocurrencies experienced a reversal of fortune during the month of February. After generating a substantial rally in January, the crypto universe rolled over to the downside. The only bright spot was Ethereum, which enjoyed a healthy gain of 25.3%. The big losers were Dash and Zcash. What was the driving force behind the crypto decline in February? Can we expect the sell-off to continue? Let’s examine the details.
Crypto Results for February
Will the Coronavirus Unleash a Crypto Bear Market?
During the past two months, the coronavirus has created a wave of anxiety and uncertainty across the global investment landscape. Investors are reevaluating their options in regard to asset allocation and future purchases. Whether we like it or not, cryptocurrencies are becoming “mainstream” within the investment industry.
The vast majority of professional money managers are beginning to regard cryptocurrencies as an important asset class, along with stocks, bonds, commodities, cash, and alternative assets. Consequently, cryptocurrencies will be affected by exogenous events like the coronavirus, as professional investors review their portfolios.
We live in a world of 7.7 billion people. With so many people living on earth, it’s inevitable that we will experience social unrest, national emergencies, weather events, public health crises, economic disruptions, and war. In fact, these events occur on a fairly regular basis. Therefore, the recent outbreak of the coronavirus is really not such a rare event. Nevertheless, there is always a sudden “rush” within the investment community to liquidate assets whenever these events occur.
A Coronavirus Timeline
Very briefly, let’s review the coronavirus timeline in an effort to determine how long asset classes might be impacted by this current global health event. On Dec 31, 2019, Chinese officials notified the World Health Organization (WHO) concerning the outbreak of the coronavirus.
Initially, the virus appeared to be fairly well contained. However, by mid-January, Chinese health officials noticed a rapid increase in the number of provinces throughout the country who had reported the virus. On Jan 30, WHO officially declared the coronavirus a global public health emergency of international concern (PHEIC) as the virus began to affect other countries outside of China. Please review Chart #1 below.
As you can see, Bitcoin was completely unfazed by the coronavirus when it was initially reported on the final day of 2019. In fact, all asset classes were not the least bit affected by the initial report. Even when WHO declared a global public health emergency on 30 January, Bitcoin continued to grind its way higher.
For the next three weeks, all financial assets (including cryptocurrencies) remained unconcerned about the virus. However, investors began to panic when the Center For Disease Control (CDC) issued a dire warning on Feb 24.
Essentially, the CDC stated that citizens in North America should expect major disruptions in their daily lives as a result of the coronavirus. Within the past 72 hours, all risk assets have experienced a sharp decline in response to the CDC statement. In terms of Bitcoin, the cryptocurrency has declined 11.9% since Monday.
Of course, the million-dollar question is, “How long will the coronavirus negatively impact cryptocurrencies?” Is it possible that this global health crisis could ignite a brutal bear market similar to 2018? Is the global economy on the verge of another financial crisis? Obviously, nobody can answer these questions with any degree of accuracy. However, we can review previous global health crises in an effort to determine how long the coronavirus might negatively affect financial markets and asset classes. Please review the following table.
The information contained in this table provides a great representation of previous global viral outbreaks. The World Health Organization (WHO) has identified 13 global viral outbreaks since 1981. Each viral outbreak was measured against the performance of the S&P 500 stock index. As you can see, there was only one instance where the S&P 500 suffered a decline following the viral outbreak.
Based on this information, we can expect the negative effects of the coronavirus to largely dissipate by the end of 2020. It’s probably safe to assume that all of the major assets classes should return to normal sometime within the next six to 12 months. This includes cryptocurrencies. However, don’t be surprised if crypto-assets experience severe levels of volatility during the next few months (maybe longer). Based on previous episodes, it’s comforting to know that the price volatility will eventually subside.
Digitex Continues to Move Forward
Despite the unfavorable market conditions, Digitex continues to progress toward the mainnet launch on April 27. The unveiling of the Digitex Futures exchange will be one of the most important events within the crypto community in 2020. Digitex will make history when it becomes the first futures exchange to offer commission-free trading. Eventually, other exchanges will migrate to a commission-free format. However, Digitex will always be the first.
Despite a few missteps along the way, Adam Todd and the entire Digitex team are only 60 days away from accomplishing their objective of a zero-fee crypto futures exchange. The DGTX token has held up remarkably well throughout the entire process. DGTX has rewarded its investors with a return of 220% from the ICO in January 2018. It has easily outperformed all of the major cryptocurrencies during this period of time. The Digitex native currency is well prepared for another big move in 2020.