Coronavirus Fears Drive Flight Capital into Crypto
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It may sound counterintuitive, but Bitcoin (BTC, Rated “A-”) and other crypto assets are often viewed as safe-haven investments, and this week was a prime example:
While the spreading fear of a coronavirus-induced slowdown drove investors out of stocks, it also drove a nice chunk of that flight capital into cryptocurrencies.
Result: A broad rally that engulfed most sectors of the crypto market.
The Weiss 50 Crypto Index (W50), the world’s broadest crypto index, rose double digits, up 13.02% on the week ending Thursday.
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Even after we strip out Bitcoin and look strictly at the altcoin space, we see that the Weiss 50 Crypto Ex-BTC Index (W50X) also jumped, and is up 14.69% on the week.
This tells us that Bitcoin is not the only crypto asset benefiting from fears of slowing global growth. Major altcoins like Ethereum (ETH, Rated “B+”) and Litecoin (LTC, Rated “B-”) are also getting a fair share of the fear money.
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When we split the sector by market cap, we see even confirmation that safe-haven demand is an important factor:
The Weiss Large-Cap Crypto Index (WLC) is up 16.96% on the week.
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The Weiss Mid-Cap Crypto Index (WMC) is up 21.91%. And ...
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The Weiss Small-Cap Crypto Index (WSC), the index that does not typically benefit from safe-haven demand, was the obvious laggard, up only 9.98%
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Remember: The small caps are the most speculative corner of the crypto asset space. So, it’s pretty obvious that investors are choosing to deploy their capital primarily in names they’re more confident in.
Overall, our crypto indexes remain close to breaking out above key resistance levels. If that happens, it will confirm our long-standing forecast that the crypto bull market that began December 2018 is set to resume here in the first half of 2020.
But it need not happen immediately. Our timing models warn that prices may be getting a bit ahead of themselves, and that a short-term correction is due.
Best,
Juan
Weiss Ratings is the only financial rating agency that covers cryptocurrencies. Click here for more in-depth information about Weiss Crypto Ratings, including the Weiss Crypto Price Indexes and crypto-asset reviews.
