Many financial commentators have ridiculed bitcoin in the past due to high volatility. They have warned of the danger of depreciation. They have therefore recommended that Norwegians either invest in shares or keep cash in their accounts. This may be sound advice, considering bitcoin has plunged lately, but so has the Norwegian krona. So far this year, the Norwegian krona has actually fallen more against the dollar than Bitcoin has. Looking at equities also makes the benchmark index on the Oslo Stock Exchange weaker than Bitcoin.
Escape from small currencies in times of crisis
The Norwegian krona has been under pressure since the start of the new year. This is due to both the falling oil price and the economic effects of the coronavirus. The Norwegian krona is a small currency, which typically gets sold in uncertain times. During crises, it is common for funds and institutions to sell foreign securities and bring the money home, to their respective major currencies.
Bitcoin has also experienced investor flight and fell sharply in the beginning when the coronavirus hit Europe. There are several factors behind this fall:
- First, there have been institutional traders in bitcoin who have had to close down leveraged positions and sell down to raise cash.
- Second, there have been two large bitcoin owners (whales), who on two occasions dumped large amounts of bitcoin.
- This triggered a liquidation spiral in the derivatives market for bitcoin. Mortgaged positions went into stop-loss and liquidation when the price fell. This led to further price declines and several hit-loss and liquidation limits.
However, bitcoin is moving forward after this rough period and its exchange rate has stabilized. This has led to, for example, the OBX index is relatively weaker than bitcoin, because the fall continues there.
Bitcoin still expensive for Norwegians
Due to the large price fall in Norwegian krone, it has not become cheaper for Norwegians to buy bitcoin this year, although bitcoin has also fallen sharply. The reason, of course, is that bitcoin is traded primarily in dollars and the dollar exchange rate has risen more than the bitcoin fall.
This is a sad news for those who had hoped to buy cheap bitcoin, but good news for those who bought at the beginning of the year. You can now exchange for Norwegian kroner without a loss, if they dare to sit with a small and uncertain currency.