From Crisis Comes Opportunity, But Don’t Expect The Crypto Markets To Change Too Dramatically

News, Opinion | May 27, 2020 By:

Since the Covid-19 crisis, the traditional and crypto markets have shifted dramatically. For both, this has meant sudden and unexpected falls, increased trading volume as investors sell off more liquid assets and increased volatility as a result. One need only look at the oil price, which is trading at record lows, to see that the markets are taking a serious hit. As with any crisis, the fall in prices inevitably presents some opportunities for savvy investors, but along with this comes uncertainty as to what will happen next. There are a few factors which need to be taken into account when considering investment, including how long lockdown is likely to continue, new traders entering the market, demand for different types of assets and products and the possible impact of inflation on the markets.

Firstly, timing investments is more crucial than ever. While volatility continues there will be a plethora of cheap stocks and cryptocurrencies to choose from, as well as lower transaction costs. This won’t last forever, history shows us that recovery tends to be quick, and some countries are already beginning to relax lockdown measures. In fact, crypto prices have already begun to recover, with some stability being regained in the bitcoin prices ahead of the anticipated halving event in May. However, for both crypto and traditional stocks, there will be ups and downs over the coming weeks and months which and not all companies will emerge as quickly as others. The key priority is to identify and avoid assets which won’t emerge at all. 

We could also see a change in profile of the investors entering the market. As more people are furloughed from their jobs, we will have a population of workers with a potentially reduced income stream and a lot more free time on their hands. This means that many may have nothing better to do than trade. As a result, we could see an increase in demand for fractional shares from retail investors who have less cash to burn than institutions, as well as a larger number dipping their toes in crypto. 

As quantitative easing kicks in and inflation increases, crypto could also see an uptick in investor interest. With governments are forced to flood more fiat into the system to support businesses during the crisis, investors could turn increasingly to cryptocurrencies, which for the most part aren’t as reliant on government action. Should this trend continue, we could see bitcoin prices skyrocketing by the end of 2020, meaning those who had invested sensibly can use it as a hedge against the inflation of traditional currencies. This doesn’t mean to say that prices will go up in a straight line, and investors will be looking at ways to mitigate risk and manage the highs and lows. This is where sophisticated products such as contracts for difference (CFDs) could see an increase in popularity, as they can protect investors against crypto volatility. 

The Covid crisis will undoubtedly continue to impact the markets in the short term. Investors are faced with lower prices both in the traditional and crypto markets, so are likely to be rethinking and implementing investment strategies to manage the volatility and uncertainty which comes hand in hand with any crisis. For the exchanges and brokers servicing these investors, those who can best adapt to these changing needs and offer an increasing variety of products such as CFDs will be best placed to weather the volatility storm. 

Having said this, those who think the markets will be forever impacted by this event, or that it will precipitate the rise of crypto and fall of fiat will be in for a rude awakening further down the line. When recovery begins it is far more likely that things will settle, and those who have been flexible with their investment strategies will be well placed to resume business is normal.