Bitcoin in the coronavirus crisis: Speculative bet or inflation hedge?

The cryptocurrency has soared 80% since mid-March in the wake of unprecedented stimulus packages

Kiev, Ukraine - September 22, 2017: Studio shot of Golden Bitcoins Coins and dollar bills. (cryptocurrency).

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LONDON -- Bitcoin has fared better than stocks but worse than gold and U.S. Treasuries during the coronavirus pandemic, with investors ascribing its performance to speculative bets and bids to hedge against inflation linked to stimulus measures.

IS BITCOIN A CRYPTOCURRENCY?

Enthusiasts have laid out numerous narratives for bitcoin as an investment proposition through its first 12 years - from a rebel technology set to upend the financial system to a groundbreaking payments network; from an uncorrelated asset to a hedge against inflation-inducing government policies.

BITCOIN BATTLES TO RECLAIM 2019 HIGHS 

Here are some charts that illustrate bitcoin’s price performance during the coronavirus pandemic - and offer some clues as to what is driving investor behavior.

OUTPERFORMING STOCKS

Bitcoin has this year done better than both U.S. and world stocks, posting a loss of around 5% compared to respective drops of 13% and 16% for the S&P 500 and MSCI All-Country World Index.

Reuters graphic

Like equities and other riskier assets, bitcoin surged in the wake of unprecedented stimulus packages launched by governments and central banks in mid-March to mitigate the economic damage caused by the coronavirus.

SCHUMER BELIEVES CORONAVIRUS SMALL BUSINESS LOAN DEAL REACHED 

The cryptocurrency has soared 80% since mid-March, partly because it offers the chance of quick returns as the stimulus measures wash into markets, investors and traders said.

Bitcoin and cryptocurrencies have appealed to investors as “they can offer a potentially higher risk-reward scenario that they cannot find in other assets”, said Michael Sonnenshein, managing director of Grayscale, the world’s biggest cryptocurrency asset manager.

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