Welcome to fear itself FDR

Welcome to fear itself

Quantum Economics’ Mati Greenspan says it’s too early to tell what impact coronavirus will have on cryptocurrencies like Bitcoin

Riding hot on the heels of coronavirus, panic has galloped into the global markets, driving everything including bitcoin before it. 

On Feb. 13, the price of bitcoin was $10,511, according to Messari. By the early morning hours of March 13, it had briefly dropped as low as $3,901, before rebounding to about $5,500. That’s a decline of almost 63% in a month, with more than 50% coming in the last seven days. Ethereum (ETH), XRP, Bitcoin Cash (BTC) all saw similar declines.

It was not much different in the traditional markets. The Dow, which had its worst single day since Black Monday on March 12, was “only” down 28% in the last month. Bonds, treasury bonds, even gold all retreated as well. 

Welcome to fear itself. 

But it is not the “nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance,” that President Franklin D. Roosevelt spoke of in his first inaugural address at the height of the Great Depression.

Coin360 Welcome to fear itself
There is no joy in cryptoville.. (Photo: Coin360).

“In order to stem the spread of the coronavirus, people are taking drastic measures which are having huge implications for the global economy,” Mati Greenspan, founder of Quantum Economics, told Modern Consensus. “The global economy basically went from booming in February to grinding to a virtual halt in March. Bitcoin isn’t immune to that.” 

The panic caused by what the World Health Organization has now labeled a pandemic, “is basically causing a further reason to panic,” said Greenspan. “There are a lot of uncertainties regarding coronavirus and how bad it is going to get. People don’t know how to price this.”

The price of fear 

Welcome to fear itself Mati Greenspan
Mati Greenspan (Photo: LinkedIn)

They do know the price tag will be high. Even setting sickness and death aside, the “social distancing” health experts and elected officials have been fiercely advocating in the past few days has shut down everything from schools and offices to the NBA and Broadway theaters.

“We certainly don’t know how some of these measures that are being taken are going to impact the economy,” Greenspan said. “Keep in mind that there are a ton of companies out there who are operating on very small margins. People aren’t even going to restaurants these days. A lot of businesses are going to go under—not even just small businesses. The entire travel industry is in jeopardy. Forget about the cruise lines. Everything.”

That means the last week was just been the “initial shock,” Greenspan said. “After a period of time, maybe days or probably weeks, we might be able to start thinking about long-term trends that could emerge.” 

Unsafe haven

This panic has had the same effect on the emerging digital assets market as it has had on the broader financial markets, Greenspan noted in his March 12 QE Newsletter. 

It “causes people to rush to liquidity,” he wrote. “Bitcoin…is being placed in the same speculative basket as the stock markets. So, we should be looking at stocks right now to figure out how to trade crypto.”

Speaking with Modern Consensus via Telegram Messenger, Israel-based Greenspan added that the idea that bitcoin and cryptocurrencies are a safe haven in downturns is “a vast misunderstanding, or a cross of narratives, if you will.”

Bitcoin acts as “a safe haven when it comes to central banks’ and governments’ policy, and inflation, and many other types of things like that,” he said. “But bitcoin is not a safe haven against global economic turmoil. It was never pitched like that.”

In a time of true turmoil, investors are more concerned with freeing up capital to protect their portfolios than anything else. 

“When you’re trading on margin or managing a large portfolio, as many institutional investors do, what happens is you start getting margin calls on some of your positions,” said Greenspan. That means either ponying up more capital or seeing your brokers liquidate your holdings while they’re in freefall.  

Bitcoin is a prime target at those times, he added. For one thing, cryptocurrencies can be sold almost instantaneously, as oppose to the two days it takes for a stock sale to be settled. 

For another, anyone who’s been holding bitcoin for a while is still in profit, even given the steep declines of the past month. “You’re certainly going to take off the positions that are in profit in order to save some of the other positions,” Greenspan said.

Digital assets are not the only investments seeing that dynamic at the moment. During the March 12 market rout, “we saw gold, platinum, palladium, gasoline, sugar all selling off at the same time as Bitcoin,” he said. “So clearly, people were trying to raise capital.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.