In the face of a global pandemic, would your choice of currency be gold? Bitcoin? U.S. Treasury Bonds? Or perhaps you would opt for cash only, in the family mattress?
To determine the answers, iTrust Capital, providers of a self-directed IRA platform for buying and selling digital currencies queried more than 1,250 respondents from Feb. 28 to March 10, 2020 during the rise of the COVID-19 situation, which the World Health Organization (WHO) has declared a global pandemic.
iTrust surveyed 200 respondents on Feb. 28, more than 500 on March 5 and more than 350 on March 10, for a total of 1,264 respondents in all. The results are fascinating as to the ways investor sentiment shifts in relation to catastrophic events as well as in relation to the overall rise and fall of the equities market.
How did cryptocurrencies fare?
In summary, iTrust concluded the relative asset values of digital currency during a time of disruption are very much influenced by the function of 1) people trying to escape capital controls, especially when they are anticipating a future calamity like war or famine; and 2) the relative values of other investment opportunities.
The results indicate consumers don’t see Bitcoin as a safe-haven investment, iTrust Capital’s CEO Todd Southwick says.“They see it as a high-growth, volatility asset,” he remarks. “The factors determining price are not only world economics, but also its now primary use case of aiding transfers of wealth across borders of countries with weak financial systems.”
The survey produced some fascinating outcomes, both absolute results and in degree of change:
- Gold is the number 1 choice for respondents, mirroring the relatively stable price in gold even as oil and equity prices have fallen dramatically.
- Cash in the mattress, stunningly, is the number 2 choice and became even more popular as panic over the global pandemic set in.
- As panic increases, more respondents think U.S. Treasuries will likely perform best, mirroring the positive price gains in the market.
- Digital currency markets have mirrored the findings of iTrust’s data as well — initially strong, then dropping, then rising again on March 10.
How do economic experts feel about these findings? Says Tim Shaler, Economist-in-Residence for iTrust Capital, “I am often asked about my view of digital currencies.”
“In addition to managing my own portfolio as a professional investor, I am also an investor into a trading platform for digital currencies and physical gold. I believe the coronavirus panic will have little marginal buying or selling in the markets for digital currencies. However, the likely economic fallout from dramatically lower oil prices, especially in Iran, Russia and Venezuela might very well cause increased trading activity in the more liquid digital currencies.”
He concludes, “I believe the run-up in BTC prices from $7000 to $10000 in January was almost entirely a function of the threat of war between the U.S. and Iran and Iranians using any means available to protect their wealth from the prospect of a quickly devaluing currency in the event of war.”
While the data shows a significant drop in consumer sentiment toward Bitcoin in the midst of a global pandemic, does this mean digital assets are a bad investment? According to Southwick, it does not.
“Consumers indicated increased preferences to cash in a mattress and US treasuries, while gold remained the top preference having not moved in any statistically significant way,” he said.
What this should tell us, according to Southwick:
- Consumers aren’t fearing a 2008 financial collapse as they pick U.S. Treasuries, and cash in a mattress.
- Bitcoin and other cryptocurrencies are viewed as volatile high growth investments.
- As per Shaler’s observations on Iran, Bitcoin and other cryptocurrencies’ use as a means to transfer wealth between countries without ready access to financial markets is important.
“If we are correct that the fundamentals of cryptocurrency come from increased adoption in global payments and cross-border transfers of wealth, the fundamentals for the investment remain,” Southwick concludes.