On Sunday (March 1) Michael Novogratz, a former Goldman Sachs partner, as well as Founder, Chairman, and CEO of crypto-focused merchant bank Galaxy Digital, explained why during the current COVID-19 outbreak Bitcoin has suffered some damage to its reputation as a “safe haven” asset.
World Health Organization (WHO) first received a report of several cases of pneumonia “of unknown cause” that were detected in Wuhan City, in the Hubei province of China. We now know that these were caused by a new strain of coronavirus that has been named COVID-19
As the number of cases of infection in China and in 58 other countries has rapidly increased during the past several weeks, the panic over the potentially huge ramifications of this pandemic have negatively affected almost all traditional and alternative assets (including cryptoassets), with the notable exception of U.S. Treasuries, with the yield on the 10-year note setting a new record low at 1.127% on Friday (March 28).
Although Bitcoin has long been referred to as “digital gold” by many fans of the world’s most valuable cryptoasset (by market cap), according to CryptoCompare, since it reached the high of $10,360 on February 14, it has dropped 15.68%, with the price at $8,735 at the time of writing:
Despite this price drop, Bitcoin is up 21.50% so far in 2020.
As for gold, the world’s oldest safe haven asset, it also came under selling pressure near the end of last week. Bloomberg reporter Ed van der Walt said on Saturday (February 29) that his investigation shows this was mostly due to “leveraged money managers” selling gold when things got “hairy”:
And why would leveraged money managers sell gold just when things get hairy?
In a word: margin calls.
As Georgette Boele at @ABNAMRO put it:
10/ pic.twitter.com/zuwwG3JHpC— Ed van der Walt (@EdVanDerWalt) February 29, 2020
Basically, the idea is that they need to get their hands on cash to prevent their leveraged positions being stopped out, and sell anything to get hold of cash.
(This is also why correlations across asset classes rise during a crash)
11/— Ed van der Walt (@EdVanDerWalt) February 29, 2020
Well, yesterday, Novogratz took to Twitter to explain why in his view Bitcoin has been trading recently like a risk asset:
How did $btc go from being a hedge against bad stuff to getting washed out and trading like a risk asset? When things go from bad, to very very bad like they did last week, investors take leverage down as fast as they can. They book profits to make up for other losses. Ouch.
— Michael Novogratz (@novogratz) March 1, 2020
However, this does not mean that Novogratz thinks that Bitcoin can no longer serve as a macro hedge.
On February 14, during an interview on CNBC’s “Closing Bell” , Novogratz said:
“I used to do meetings and have to convince people how Bitcoin worked and whatnot.
“Now, I talk about this as a weapon in their macro portfolio as a hedge against inflation, as a hedge against easy monetary policy and debasement of fiat currency.”
