Cryptocurrency markets continued to soar this week, adding $33 billion in total value. This marks the 3rd consecutive week that Crypto markets have increased market capitalization during a time of traditional market uncertainty and economic contractions. During the last 3 weeks, the digital asset markets have grown nearly $60 billion in value.
Cryptocurrency markets added $33 billion to total market capitalization this week. When factoring in the last 3 weeks, Crypto markets have added $60 billion in value. 92% of the largest cryptocurrencies by market capitalization gained value the last 7 days. Cardano ( ADA ) was the best performing digital asset, surging +20% the last 7 trading sessions. In our previous report, Altcoins were the primary gainers as Bitcoin saw a fraction of the market growth. The last week, Bitcoin soared almost +18%, making it the 2nd best performer among the top 25.
Bitcoin price has grown +20% year to date, which has primed it for one of the best investments to be sitting in during the global pandemic. As previously stated, people that allocated Bitcoin to their portfolio in the last year have had the perfect opportunity to “de-risk” their investment portfolios. All major indices are still sitting in the red year to date. In addition, almost all major U.S sectors have produced negative returns year to date. This further supports the theory that Bitcoin has been the most strategic spots to allocate investment during the pandemic.
It was believed that Bitcoin would face the ultimate challenge during a global pandemic. With Bitcoin being around during an “all-around” bull market, many critics believed it would tank in an environment like this. The outperformance could go down as a milestone in the evolution of Bitcoin. If traditional markets continue to slide into a recession during Bitcoin outperformance, it’s assumed that many more institutional managers will start looking into the opportunity long-term.
A select few tech stocks have seen some growth this year. The main driver behind this is the company’s abilities to operate in an environment where the economy is essentially on lockdown. Business models such as Netflix arguably have an advantage based on their target market. When taking a look at some of the largest stocks, Bitcoin has only really trailed Netflix in terms of year to date performance. We still see that companies with multiple streams of income like Facebook and Apple have a difficult time maintaining growth during these economic times. The competitive edge for Bitcoin is that BTC doesn’t have “earnings” or “revenue.” As long as demand continues to pour in on a global basis, it still has the ability to be the ultimate diversifier.
Markets fell sharply to conclude the week. On Friday, the Dow Jones fell -622 points and the S&P 500 fell -81 points. The markets opened strong this week, but sold-off as financial metrics surfaced throughout the week. Oil rebounded this week, rallying +16.5%. The Oil rally was fueled by better than expected “inventory data” and the fact that the global economy is starting to reopen. Oil prices are still expected to stay low for a while due to “oversupply” from Coronavirus. This excess supply could take months to normalize. Investors are still taking a conservative approach, waiting to see how effective opening the economy really is.
1st quarter economic data was released this week which showed -4.8% contraction in GDP. Historically speaking, the economy hasn’t contracted this much since 2008. With 2nd quarter numbers expected to be worse, investors saw the potential of a recession. Recessions have historically occurred after a fall in GDP ( 2 quarters in a row.) Business investment fell -8.6% and real consumption suffered losses of -7.6%. 2nd quarter GDP could be even worse based on the COVID-19 timeline. Stay at home orders didn’t really surface until later in March. When factoring in the lack of financial activity all of April, 2nd quarter GDP could be a wake up call.
Unemployment data that was released this week didn’t help investor sentiment either. It was reported that an additional 3.84 million jobless claims were accounted for. That brings the total to 30 million + Americans that have applied for unemployment insurance the last 6 weeks. States like Washington are seeing 1 in 5 workers filing for unemployment. The jobs being lost right now have essentially erased the 20+ million that were created the last 10 years. At first, investors believed this to have a short term impact, but it seems like investors are now beginning to question how long of an impact it will really have on the economy. Based on the metrics coming in, it’s believed that unemployment could jump to 14% by the end of the 2nd quarter. If this holds true, it would be 4% higher than the unemployment rate during the last recession.
Earnings: Original earnings expectations have been slashed for 2020. Prior to Covid-19, earnings were projected to soar due to low unemployment and increased consumer spending due to low interest rate environments. COVID-19 has caused this narrative to evaporate, and now investors are eyeing the 2021 recovery. Tech stocks sold off this week after Amazon missed expectations. In addition, Apple failed to issue future guidance which injected more uncertainty in the market.
Central Banks: Major central banks met this week and continued to deploy all resources possible to keep the economy afloat. Banks such as the Federal Reserve and Bank of Japan all plan to purchase securities and unlimited government bonds.
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