Increasing anxiety in cryptocurrency markets – we’ve been here before

cryptocurrency markets shock
Photo by Noriko Cooper

There appears to be increasing anxiety in the cryptocurrency markets after the prices of bitcoin failed to maintain above the psychological 10000 levels in February. The disappointment came just less than three months ahead of the highly anticipated bitcoin halving. Although bitcoin has been still holding its 21% QTD gains after the February rollercoaster ride, recent macro events have been looming in both traditional and crypto markets and added an extra layer of uncertainty.

However, when we look back in time, investors could find the current market conditions are somewhat looking like 2012. 2012 and 2020 are both bitcoin halving years, with some global crises happened, and equities markets were turbulence. Can history reveal more details about the pre- and post-halving from a macro perspective?

Virus-driven selloff

February was a tough month for the cryptocurrency markets. With the escalating fears of the coronavirus outbreak, BTC prices plunged from USD10400 levels in the middle of the month and closed at the USD8500 area in the month-end. The risk-off sentiment was also high in the global equities markets. The Dow registered an 1190-point drop on February 27 before the initial rebound occurred, the worst one-day point drop in history. Commodities also took a hard hit, with WTI went below USD50 a barrel.

On the other hand, the demand for safe heaven surged, as the US10Y touched the record low of 1.03% at one point before settling down at around 1.08%.

While broader market reaction seems, have been painted a bleak picture, and the cryptocurrency markets didn’t get immune from that. Some even questioned bitcoin’s safe heaven characteristic as it seems failed to hedge against uncertainties.

Find yourself back in time

The upcoming bitcoin halving remains the primary focus for most of the crypto watchers despite the recent global market turmoil. While the recent BTC price actions and the high volatility in other assets could put some long-term crypto investors in doubt, questioning whether halving is a self-complacency or real long-term bullish factor

Perhaps we can look of the year 2012, where bitcoin had its first halving and, at the same time, markets were in the middle of anther turmoil, in that case, the European debt crisis.

It started in 2009. Some EU member counties were unable to refinance their government debts, and a few states were unable to bail out their deeply indebted financial institutions without helps from the ECB or the IMF.

Of course, the overall equities markets and the cryptocurrency space in 2012 were very different from what we have today. However, the risk-off sentiment, the pessimistic outlook, and the fears of having a recession are comparable.

Interestingly, the prices of bitcoin jumped about 160% in 2012 on the back of the Eurozone debt crisis, and most of that gains happened before the first halving, and the profits were even more noticeable in the year after the halving. In comparison, SPX gained 14.5%, and SX5E jumped about 11.2% in 2012.

It’s a currency matter after all

We’ve been keeping highlighting the store of value nature of bitcoin and believe that bitcoin is an ideal hedge against inflation because of its limited supply. In other words, bitcoin could be a good hedge against fiat currency depreciations.

The European debt crisis was centered on the structural problems of the financial system and the easy credit conditions back in the early 2000s. As a result, it has led to a massive bailout program and the lowering of interest rates, these measures have caused a significant depreciation of EUR. In late 2011, EURUSD was traded at above 1.4. By mid-2012, EURUSD already dropped to 1.20 area before rebounding to 1.3.

After all, the debt crisis has resulted in some significant currency depreciation, and bitcoin reacted to that depreciation in 2012, even before the first halving event took place.

Now, considering the ongoing uncertainties related to the coronavirus, it’s fundamentally different from the debt crisis. Yet, what the market is experiencing is somewhat looking like what we went through in 2012. We believe that markets should focus more on how policymakers react to the outbreak and the resulting economic consequences.

The US Fed delivered a half-point rate cut as an emergency measure of the virus outbreak. DXY has dropped from the upper 99 handles to the low 97 areas. Markets expect the Fed will slash the rates further in the March policy meeting. At the same time, the easing narrative from other major central banks has emerged very quickly. Those shifts could cause pressure on G10FX, and that could be an additional benefiting factor for bitcoin prices over the medium/long term.

When it comes to halving…be patient, remember?

In our previous publication “Bitcoin Halving: The Time to Get in Bitcoin?”, OKEx Quant pointed out that the price rise of bitcoin after halving has a tendency to prolong every time, and this market cycle is not expected to complete until 2022. Although the recent price actions may not look so bullish, OKEx Quant believes that the market remains at an ideal HODL-ing period presently, long-term investors probably need to be more patient to see the results.


The bitcoin market was still tiny at the time the European debt crisis erupted, and it’s still relatively small today comparing to other major asset classes. Bitcoin and cryptocurrency may not be the best instrument to hedge against a global-scale recession, as bitcoin HODLers could liquidate the holdings to compensate their losses in other assets or repay their debts. However, when a crisis comes and policymakers tend to resort to easing, bitcoin could be an ideal hedge against currency devaluations. The global market developments in this pre-halving period could be essential for all the crypto investors, and how it unfolds could be a dominating factor in terms of future crypto allocations.

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