On Monday morning equities markets in the United States and Europe dropped sharply as investors fear over the continued spread of COVID-19, also known as the Coronavirus, intensified.
Earlier in the day, the Italian government instituted a quarantine on 10 towns as the number of people infected by the highly infectious virus rose to 152 and to date 7 people have died.
The initial threat COVID-19 posed to global markets seemed to have subsided as China’s swift intervention and strict nationwide quarantines painted the picture that a global pandemic had been avoided.
The contagion spreads to traditional markets
DJI and S&P 500 daily chart. Source: TradingView
COVID-19 is now present in 30 countries and the recent outbreak in Italy, along with the spread of the virus to Iran, South Korea, Bahrain, and Kuwait over the past few weeks have forced investors and governments to come to terms with the possibility of the situation worsening.
At the opening bell, the Dow Jones Industrial Average pulled back sharply, falling 1,031 points to 27,960.80. The steep 3.56% drop is the worst correction the market has seen since December and February 2018. The pullback also wiped out all of the gains the Dow has made in 2020.
The S&P 500 took a similar knock, dropping 3.4% to 3,225.89, while the Nasdaq Composite dropped 3.7% to close at 9,221. Markets throughout Europe also corrected sharply.
A growing number of analysts now fear that today’s sharp pullback could be the beginning of a stronger 10% to 15% correction as the massive quarantines in place in many major Chinese cities are expected to negatively impact markets and international trade.
CNBC Mad Money host Jim Kramer explained that stocks are currently “too toxic to touch” as U.S.-based companies are “far too dependent” on manufacturing in China. Kramer urged caution in viewing the current pullback as a buy the dip opportunity and said:
“I need to emphasize, again, that the big risk from the coronavirus outbreak has to do with interrupted supply chains and a concomitant business slowdown worldwide.”
Bitcoin price drops as gold and silver pop
Interestingly, as the markets corrected, Bitcoin (BTC) price remained range-bound throughout the day but eventually pulled back 3.28% to $9,473 during the U.S. afternoon hours.
Many Bitcoin advocates believe that the digital asset is inversely correlated to traditional markets and have often suggested that investors will flock to it as a hedge against volatility in traditional markets but that was not the case today.
Bitcoin daily price chart. Source: Coin360
Despite the 3.28% pullback, at the time of publishing Bitcoin continues to trade in the $9,400 to $9,900 range. As the price nursed marginal losses, gold price rose nearly 2% to reach a new 7-year high at $1,676.60 and silver followed with similar gains.
Gold, Silver, BTC/USDT daily chart. Source: TradingView
Crypto investors and analysts are sure to be curious as to why Bitcoin has failed to follow gold’s lead today since the crypto asset is frequently referred to as ‘digital gold’.
Previously, in instances of volatility in traditional markets and geopolitical instability, Bitcoin price notched significant gains. In 2019 the digital asset rallied strongly as tensions over the US-China trade war negatively impacted markets and earlier this year when investors feared the US was on the verge of war with Iran.
Investors will now watch to see if a relief rally takes place as stock markets open around the world on Tuesday and crypto investors will likely have their fingers crossed with the hope of Bitcoin price following any short-term recovery by traditional markets.
