Fear the virus’ spread will lead to a pandemic that could slow the global economy is dragging down stock prices; the SP 500 index is in the red by 10 percent since the beginning of 2020. Bitcoin (BTC) has also taken a hit, with the cryptocurrency trading below $9,000 for the first time since January, although as of Feb, 28 it is still up 20 percent for the year to date.
Cryptocurrency traders are contending with volatile markets due to coronavirus. Since Feb. 25, the number of new COVID-19 cases reported in the rest of the world has surpassed new cases in China, according to the World Health Organization.
Meanwhile, cryptocurrency over-the-counter (OTC) trading volume has been on the rise since the virus became a constant part of the news cycle. “We have been seeing a significant uptick in volume over the last 60 days”, said Michael Leon, a trader at Chicago-based Althena Investor Services, which specializes in serving OTC clients. Upticks in week-over-week volume for cryptocurrency exchanges such as Coinbase and Kraken are also being seen, according to data from CoinGecko.
Globally, the virus’ impact has been varied. Australia, which is closer geographically to Asian economies highly affected by COVID-19, has not seen a significant drop in trading, at least according to one desk. “No noticeable effects here in Australia”, said Tilo Grieco, head of OTC desk at ORTUS, based in Sydney.
One strategy some traders are contemplating to prepare for COVID-19 is not holding volatile cryptocurrency assets unless absolutely needed. That’s what Althena’s OTC desk is doing. “We manage inventory very tight and run a matched book, so the coronavirus hasn’t been a factor”, said Althena’s Leon.
Inventory management for trading desks may be prudent, given the uncertainty that lies ahead, according to Rupert Douglas, head of business development and institutional sales at Koine, which provides settlement and custody for cryptocurrencies.
“While alternative stores of value like gold and BTC have rallied since the start of the year, they haven’t fared so well over the last few days. The genie – as in volatility – is out of the bottle, with big swings ahead anticipated in all asset classes”, said Douglas.
Paul Ciavardini, head of trading at ItBit/Paxos, observed that recent lows in bitcoin’s price are likely spilling over from trading decisions made in traditional markets. “My guess is that we are seeing some traditional institutions, that also have either a crypto side pocket or something like that, lighten up on overall risk with what is happening in the equity and bond market”, said Ciavardini.
Crypto Hedge Funds See Best January on Record
Crypto hedge funds that make up Eurekahedge’s index of crypto hedge funds have experienced a 21.15% return in January 2020.
Eurekahedge Crypto-Currency Hedge Fund Index
This is not only the best January on record (the Index goes back to July 2013) but the first positive return for the month of January since 2017, when it posted a modest 4.85%. 2017 happened to be the most successful year for crypto hedge funds to date. That year, they posted a whopping 1,708.50% annual return.
The Index doesn’t include all crypto hedge funds, but still, it is indicative of the overall market sentiment and seems to closely correspond to the market. Good results for the funds should make fundraising easier for fund managers and lead to more investments in the space.
Times have changed since 2017 when one could generate copious returns by throwing darts at the board. Since then, crypto funds have either evolved to become “smart money” or have perished.
The fact that the Index has posted such positive returns last month is a sign of the maturation of the crypto ecosystem as a whole.