Welcome, welcome to One Minute Crypto!
I'm your host, Chronos, and today, part 2
of our series on COVID-19.
We need to talk about why bitcoin started
crashing when the market crashed.
Isn't it supposed to be a safe haven, and
go up when things get bad?
Well, there are two major reasons for the
crash.
One of them got it started, and the other
made it a lot bigger.
I can't wait to get into that, but first,
I want to thank our sponsor, Americas Cardroom,
the most trusted US online poker site.
Fund your account and claim your winnings
using any of over 60 different cryptocurrencies!
So if you're stuck in quarantine with nothing
to do, like I am, check them out at https://americascardroom.com.
So, the thing that started the crash is a
movement called "risk off", where anything
considered risky gets sold off.
When traders get scared, they want safe investments.
So the stock market crashed, and that makes
sense, but take a look at the gold and silver
markets.
Same thing: they went down too.
Based on the activity in the market, the safest
investments were US dollars, Japanese yen,
and government bonds.
Take a look at the DXY, or dollar spot index,
which tells us how valuable the US dollar
is compared to other fiat currencies.
We've got months and months of calm, and then
huge movements because of COVID-19.
I want to emphasize, these are unusual movements.
Fiat currencies generally shouldn't move this
quickly against each other.
But there's another mechanism that made the
crash even bigger, and that's margin trading.
Many investors borrow money to put in these
markets, and when the price goes down, they
have to sell just to cover their loans.
This definitely happened in bitcoin, and as
borrowers were forced to sell, it pushed the
price lower, forcing MORE borrowers to sell,
in a cascading margin call.
Ouch.
So now we know: during risk off, everything
goes down, even cryptocurrency.
At this point, I'm seeing bitcoin as more
of an inflation hedge than a market risk hedge.
So what's happening to the supply of fiat
currencies like dollars and Euros?
Let's dig in in the next episode.
I'm Chronos.
Thanks for watching!
