Here’s why Bitcoin might be safe from a global stock market crisis

One reason for Bitcoin (BTC) volatility, the large fluctuations in price that occur regularly, is the inconsistency in its use cases. Some critics consider it “digital gold”, a truly rare and exemplary store of value. Others consider Bitcoin a technology project or some kind of program with a corresponding network.

The adoption of El Salvador as a legal currency is likely evidence of the means of exchange offered by the Lightning Network. The Layer 2 scaling solution allows for instant and unreasonable transfers, although it requires regular on-chain transactions to enter or exit this parallel network.

As these narratives about Bitcoin change over time, so does BTC’s correlation with traditional assets. For example, there have been long periods of strong correlation with gold.

Bitcoin vs. Gold (Precious Metal) in 2020. Source: TradingView

The March 2020 crash was devastating for nearly every asset class, but the recovery pattern that followed those six or seven months was almost identical to gold and bitcoin. Oddly enough, the opposite movement occurred in 2021, which indicates an inverse relationship between the two origins.

Is Bitcoin a technical stock agent?

On the other hand, Bitcoin has begun to mimic the stock market in Hong Kong, according to the Hang Seng Index. Among its most important components are Tencent, Alibaba and Meituan, which are multi-billion dollar Asian technology companies.

Bitcoin vs Hang Seng Index (Stock). Source: TradingView

This shift in investor perspective – from tracking gold prices to technology stocks – begs the question of whether Bitcoin will succumb to the downward Hang Seng movement seen in the past 90 days. Does it make sense to separate now? If so, will Bitcoin continue to operate as a safe haven amid a general correction?

On Tuesday, Evergrande Group, China’s second-largest real estate developer, announced that a significant drop in sales had forced the company to default on its debt payments. This single company has more than $300 billion in liabilities, which, according to analysts, could severely impact the broader market.

In August, Chinese retail sales disappointed at 2.5% from a year earlier, as investors expected a 7% growth rate. It is clear that growth and the economy will be severely affected in 2020 by the government’s response to the COVID-19 outbreak.

However, one must take into account that the most influential central banks have been practicing near zero or even negative interest rates since the first quarter of 2020. Thus, if the economy fails to gain momentum amid multiple trillion-dollar stimulus packages, Not much can be done to prevent a generalized correction in the stock market and potential losses in the debt markets.

The problem is that Bitcoin may be 12 years old, but it has never faced a major economic crisis, at least nothing that puts the global debt markets worth over $250 trillion at risk. Therefore, it is unlikely that any analysis or estimation will result in a reliable assessment.

Bitcoin may be less affected by market crash

However, mainstream cryptocurrency has an advantage over traditional markets such as commercial real estate, stocks, and bonds. Lenders will foreclose these assets if customers default on their payments, and this adds more pressure because the bank or institution has no interest in holding them.

On the other hand, in general, bitcoin and cryptocurrencies cannot be used as collateral.

In terms of futures liquidation of the $1 billion bitcoin contracts in the derivatives markets, these are just synthetic instruments. Undoubtedly, these events will affect the price, but at the end of the day, BTC remains active on the derivatives exchange. It only moves from the long balance (buyer) to the short account (seller).

Until Bitcoin becomes fully entrenched in the financial markets and accepted as collateral and deposits, the medium-term systemic risk of the cryptocurrency is lower than in the traditional market.

The opinions and opinions expressed here are solely those of author and do not necessarily reflect the opinions of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.