On March 7, 2020, the Bitcoin price took a big blow by falling from a staggering $9200 mark to $7,000 and again taking a hit to mere $3,500, later bouncing back to $6,000. In our previous article, we shared what could possibly be the reasons for such a fall.
Some analysts blamed the fall in Bitcoin price on the coronavirus outbreak, while some blamed it on the US stock market crash and international oil price fluctuation. However, Binance CEO, Changpeng Zhao has a slightly different opinion on this whole issue.
In one of his blog posts posted on March 20, 2020, Changpeng Zhao shared his thoughts on the current situation in the crypto market. He isn’t worried about the cryptocurrency at all. According to him, the fundamentals haven’t changed, and Bitcoin is still limited in supply whose demand is increasing, especially at this very moment.
Why did the price of Bitcoin go down?
To answer this question, Changpeng factored the price of Bitcoin on two major dimensions. The first one is die-hard believers vs. new-to-crypto. Die-hard believers are the ones who keep their crypto-asset intact and never sell them while the new-to-crypto may not understand crypto that deeply and better but are potential buyers.
The other dimension is those who ‘have spare cash’ vs. those who ‘scramble to pay the rent.’ ‘Have spare cash’ are the ones who have extra money, and even if the price of their crypto assets drop, they are still able to pay their living expenses. They buy more during the dip. However, ‘scamble to pay the rent’ are the ones who depend on short term gains to pay their rents. When the market takes a hit, they are forced to sell their assets.
According to Changpeng Zhao, no one knows the composition of such users in the crypto market. However, when the market takes a hit, more people start feeling the cash crunch and hence, a more definite conviction for selling off their crypto assets in the short term, and that’s what happened in the last week.
Is it because of the coronavirus?
“The 2008 financial crisis didn’t involve a pandemic. The dynamics and psychology are a little bit different. With roughly only 1 in 1000 people having or accepting crypto, it isn’t so useful in a pandemic situation just yet. When people fear the doomsday of empty shelves in stores and a shortage of food, people will want to hoard cash. So there’s increased demand or pressure of people wanting to sell their investments (stocks or crypto) into cash, again in the short term.” said CZ.
He believes that people will eventually understand that hoarding cash is no longer needed even in pandemic situations because many countries are equipped well enough with a sufficient amount of food and supplies. One they realize it, they will again invest their money in the crypto market.
Is crypto a safe haven?
Changpeng was quick to respond by saying, “you make your judgment. I made mine.” He further elaborated, “Either way, I hope you understand there are many factors at play in each moment. Don’t expect bitcoin to be guaranteed to go up when the Dow Jones index crashes, or vice versa. It’s not a perfect inverse correlation product. If you want that, you should just short the Dow Jones Index futures.”
Past vs. the present: Anything different from 2008?
Changpeng Zhao did acknowledge that there is a difference between the current situation in the year 2020 vs. 2008 financial crisis. In the year 2008, there wasn’t a pandemic pausing the global economy. He believes that COVID-19 is just a trigger and not the real root cause. He insists that our economy should be more robust, strong enough to take on shocks like this.
At the end of his blog post, he summarized his article with his iconic slogan, “Long Bitcoin, Short the Bankers.”
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