Author | OKEx Analyst Yan Song
Bitcoin's strong performance during the epidemic
· The short-term economic impact of the epidemic will be higher than that of SARS
The epidemic has negatively affected the Bitcoin mining industry
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Figure 1: 1/27 – 2/7 A50 Index/Gold/Crude Oil/S&P/USD/CNY Exchange Rate Yield Situation – Red/Yellow/Purple/Green/Grey
Regarding the impact of the coronavirus on China's economy and financial markets, the best reference is the SARS epidemic in 2003. The SARS epidemic began in December 2002, but did not spread in China until April 2003. The epidemic began to weaken after mid-May. According to the World Health Organization, the effects of the SARS outbreak lasted about two months. According to the data reported by Caixin, in the second quarter of 2003, all economic sectors (agriculture, industry and services) were affected, and the year-on-year growth rate of gross domestic product (GDP) dropped from 11.1% in the first quarter to 9.1% But rebounded to 10% in the third and fourth quarters, and the service sector did not see a significant recovery until the fourth quarter. The worst-affected industries are finance, hotels, catering, transportation, warehousing and postal services. The new coronavirus that broke out in the Spring Festival this year is not as deadly as SARS, but its spread is wider. There are also more confirmed cases and ultimately more deaths. The government has adopted more severe measures than in 2003, including closing cities such as Wuhan and extending national holidays. Therefore, the short-term economic impact of this outbreak will be higher than that of 2003. China's economic growth may have fallen to 5% or even lower in the first quarter. According to Goldman Sachs estimates, China's GDP growth rate will slow to 5.5% this year. In 2019, China's annual GDP growth rate was 6.1%, lower than 6.6% in 2018.
Taking SARS as a reference, the impact of the epidemic on transportation, hotels, catering and other industries with more rigid needs is relatively short-lived, and once the epidemic weakens significantly, the market will recover quickly, and assets with higher risks will rebound strongly. We can already see this trend from the gold and stock movements in the past few days. Chinese stocks opened sharply lower by nearly 9% on Monday before the broader market started to rebound slightly before the close. Stock markets started to rally on Tuesday after the People's Bank of China said it had injected 500 billion yuan into China's banking system to provide liquidity support to markets during the outbreak. In the stock market, industries represented by the hotel industry, airline industry and consumer discretionary goods will be under pressure in the short term. As it is difficult to assess the impact of the epidemic on consumer spending at this stage, for example, the stock prices of some high-quality consumer discretionary goods companies have fallen sharply , it may be a good buying opportunity. Of course, China's current economic situation is very different from that of 17 years ago, and its role in the global economy has also changed greatly. In 2003, China accounted for 4.3% of global GDP, but this figure has risen to 16.3% in 2019.
Regarding the strong trend of Bitcoin during this period, Terry Duffy, chairman and CEO of CME Group, said in an interview with CNBC on February 3: "We see more and more people participating Bitcoin. I think it’s more like a safe haven like gold trading.” Looking back at the trend of Bitcoin over the past period of time, we can see that during the impeachment trial of US President Trump and the conflict between the United States and Iran, Bitcoin’s rise Sync with gold.
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Figure 2: BlackRock Geopolitical Risk Indicator (BGRI)
But the outbreak could still have a negative impact on Bitcoin, as according to a Coindesk report, some Chinese ASIC manufacturers have delayed shipments of mining equipment due to the coronavirus outbreak. According to the report of CoinShares Research, 66% of the computing power of the entire Bitcoin network is located in China, and 50% is located in Sichuan Province, so the extension of the New Year holiday may hinder the growth of the computing power of the entire network. Jiang Zhuoer, the founder of Btc.top, also posted a video on Weibo, showing that one of his mining pools in a remote suburb was forced to close.
To sum up, the SARS epidemic in 2003 provides some references for the current macro situation. We believe that after the labor force returns to work one after another, the impact of the epidemic on various industries will decline rapidly.
