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Bitcoin's Biggest Price Drop Since 2013, Crypto Markets in Panic

The stock market was devastated, with the major indices falling over 9%. Bitcoin fared much, much worse.

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Bitcoin had its largest price drop since 2013, plummeting over 40%. The drop was precipitated by today’s relentless stock market sell-off.

Global Markets in Turmoil

Markets went into free-fall. The DOW Jones Industrial Average dropped 2,352 points, or nearly 10%—the biggest one-day drop since 1987. The S&P 500 and the Nasdaq were each down more than 9%.

The mayhem was precipitated by the novel Coronavirus pandemic, which was further exacerbated by the U.S. government’s ineptitude at containing the virus in the United States. Matters were compounded by the breakup of the OPEC alliance, which caused oil prices to drop by 30%.

The selloff probably marked the end of the longest bull market in history, which lasted since March 2009.

BTC Gets Eviscerated

The drop in traditional equities, however, pales in comparison to what was seen in the crypto market. During trading hours BTC plummeted from $7,946 to $4,650⁠—a loss of 41.5% at closing time. The move represents the largest drop in Bitcoin prices since 2013.

Altcoins were also devastated, experiencing high double-digit losses across the board. DeFi was hit particularly hard. MakerDAO, Synthetix, and other DeFi players are straining to keep their protocols afloat in the face of mounting asset liquidations and price oracle failures.

The Bitcoin “Safe Haven”

Pundits touted Bitcoin’s lack of correlation with the broader market. Others went as far as to call Bitcoin a “safe haven” asset, similar to gold, which benefits from periods of economic upheaval.

These factors would make holding BTC an outstanding addition to a diversified portfolio, the narrative went. Today, that narrative was wrong.

As markets faltered, Bitcoin’s correlation with the stock market continued to increase. The month of March further cemented this relationship, where stock and Bitcoin prices rose and fell roughly in tandem.

The data supports this observation. Using price and volume data as far back as 2010, the relationship between Bitcoin and the S&P 500 has never been closer. The correlation coefficient, a measure of the strength of a relationship between two assets, hit an all-time high of 0.39 year-to-date, compared to figures from all prior years.

Why Did Bitcoin Drop?

The selloff of both Bitcoin and equities could be explained by a sudden change in the global appetite for risk.

Bloomberg estimates that the chance of a global recession within the next 12 months is over 50%, odds not seen since the 2008 financial crisis. And, market participants sense the increased levels of uncertainty. COVID-19 brought these concerns to a head.

The increased levels of uncertainty resulted in a flight from stocks to safe investments⁠—primarily treasuries, bonds, and cash. This is evidenced by dropping interest rates in safe investments.

Three days ago, yields for one of the safest investments available, the 10 year treasury bill, fell to an all-time low of 0.54%, from 2.67% at the start of the year.

Corporate bonds with the highest rating, AAA, weren’t much different, with yields falling from 4.28% in November 2018 to 2.67% today. Gold, the traditional safe haven, also showed resilience, posting a small gain of 0.44% year-to-date.

Bitcoin is a far riskier investment than stocks, with wild price swings, regulatory uncertainty, and unique technological risks. Its place in the global financial system is far from guaranteed.

As a result, BTC was spared no mercy in today’s carnage.

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