Bitcoin finds a bottom as global markets in grip of risk aversion

PUBLISHED : Monday, 12 February, 2018, 2:35am
UPDATED : Monday, 12 February, 2018, 2:35am

What’s supposed to be the most volatile asset in the universe is proving to be a bastion of stability compared with wild swings and carnage in global equities this week.

Bitcoin clawed its way back from the four-month low of US$5,922 it touched on Tuesday, rebounding 53 per cent to US$9,069. The S&P 500 Index and the Dow Jones Industrial Average both fell more than 5 per cent this week, wiping out gains for the year.

Emerging markets stocks and currencies also plunged, while shorter maturity US Treasuries climbed as investors fled from risky assets to safe-havens.

Bitcoin’s supporters are quick to extol the cryptocurrency’ virtues as an asset that is uncorrelated to the broader market – independent from any single country, company or central bank – which can serve as a haven in times of market turmoil. And while that turmoil can usually be found in bitcoin prices and headlines, this week US equities are beating the largest cryptocurrency on that field.

Since the drop below US$6,000, bitcoin has been on a steady climb, causing volatility measures on the digital asset to stabilise while the sell-off in the S&P 500 triggered the biggest jump on the Chicago Board Options Exchange Volatility Index ever.

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The “do no harm” approach to cryptocurrencies taken by US regulators at a Senate hearing on Tuesday sparked the rebound, while negative headlines from regulatory crackdowns in China and South Korea that have weighed on prices subsided.

The 70 per cent slump from bitcoin’s high of almost US$20,000 has prompted finance heavy weights to say the crypto bubble had finally popped. Judging from price action this week at least, maybe those calls were premature.