Bitcoin successfully passed its "first real stress test" during March’s global economic turmoil caused by the coronavirus (COVID-19) pandemic, according to JPMorgan strategists.
In their report published last week and obtained by The Block, strategists at the bank led by Joshua Younger and Nikolaos Panigirtzoglou, said that bitcoin rarely deviated from its intrinsic value or mining cost in the past few months, and outperformed other traditional asset classes, proving its resilience.
There was also little sign of a flight to liquidity within the cryptocurrency market, and the market structure was “more resilient” than forex, equities, treasuries, and gold, according to the strategists.
Bitcoin saw one of the “most severe” drops in liquidity around the peak of the crisis in March, “but that disruption was cured much faster than other asset classes. At this point, Bitcoin market depth is above its 1-year trailing average, while liquidity in more traditional asset classes has yet to recover,” said the strategists.
“That cryptocurrencies largely survived the stresses of March point to longevity as an asset class,” they added, “but price action points to their continued use more as a vehicle for speculation than medium of exchange or store of value.”The strategists said there is “little evidence” that bitcoin served as a safe haven i.e. “digital gold” during the March market panic. Instead, its value appears to have been “highly” correlated to risky assets like equities.
“Though correlations were modest and mostly mean-reverting around zero for much of the past couple of years, in recent months they have moved sharply higher in some cases (equities) and lower in others (U.S. dollar, gold). [...] That suggests that...cryptocurrencies have traded more in line with risk assets since early March,” said the strategists.
Stablecoins also got a mention in the JPMorgan report. The strategists said stablecoins such as Tether (USDT) and USD Coin (USDC), emerged largely “unscathed” from the turmoil.
“These tokens were relatively well behaved—though daily volatility is much higher than one would want from a truly managed exchange rate, it did not rise appreciably either in March. In that sense, their backing held through the most acute phases of the crisis,” they added.
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