1918 Spanish Flu, gold and Bitcoin have one common denominator – Bulls beware


Today, many people believe that COVID-19 will prove to be the ‘Great Disruptor’ just like World War 2 and the Great Depression. Now, imagine the cumulative effect of these world events occurring over the next two years. Sounds bleak? But the world has been through worse catastrophic events than COVID-19, and still, there are valuable … Read more

Today, many people believe that COVID-19 will prove to be the ‘Great Disruptor’ just like World War 2 and the Great Depression. Now, imagine the cumulative effect of these world events occurring over the next two years. Sounds bleak? But the world has been through worse catastrophic events than COVID-19, and still, there are valuable lessons hidden under the 1918 pandemic’s immense misery and grief.

Even though the world economy prospects aren’t bright, there’s a silver lining to every dark cloud.

Spanish Flu struck the world in 1918, and humans suffered for two long years via a series of three destructive waves. Americans were returning home from World War 1 when the Spanish Flu turned their homecoming into a harrowing ordeal.

Over the next two years, around one-third of the world population was infected, and approximately fifty million people dead. In the United States alone, some 650,000 deaths were attributed to the Spanish Flu.

The economic impact of Spanish Flu – Two years of misery

The U.S. unemployment rate in 1918 stood at 1.8 percent. However, it jumped to 11.7 percent by the end of 1920 due to the Flu and post-war recession. A similar tale of unemployment is unfolding today as well. Coronavirus led to nation-wide lockdowns and ravaged businesses across many states. The U.S. unemployment rate peaked in April 2020 at 14.7 percent. In September 2020, it stands at 7.9 percent.

Source: Back to the Future: Lessons Learned From the 1918 Influenza Pandemic

The economic recovery after the 1918 Spanish Flu was neither swift nor uniform. Some sectors emerged out of the rubble quickly, while others took decades to resurrect. Still, by 1923 most of the businesses were in the green, and the Flu was a distant memory. Just like today, massive investments into public healthcare infrastructure meant that the health sector performed exceptionally well in the next decade.

Entertainment thirsty citizens thronged to fill theatres. The entertainment industry performed well during the 1920s. In fact, this was the gilded age of the movie industry with stunning Hollywood superstars churning iconic movies.

Source: US Bureau of Labor Statistics

Today, we can see a similar pattern emerging where some sectors are outperforming even during economic distress. The education sector has seen an enormous push towards online-only teaching, including universities, colleges, and schools. ‘Work-from-home’ is another area that saw exponential growth. COVID-19 lockdowns meant offices were closed for an extended period. Many tech giants and corporations have shifted a few roles permanently to ‘work-from-home.’

Gold and Bitcoin correlation emerges stronger post COVID-19

Bitcoin suffered heavy losses when COVID-19 ravaged world markets in March 2020. Even as stocks plummeted over the next few months, both gold and Bitcoin recovered relatively quickly. Investors were already convinced about the gold price rise as it is a safe-haven asset and is expected to outperform in such a crisis. However, Bitcoin’s price rise was surprising to the traditional investor.

There’s a strong correlation between gold and Bitcoin emerging in the post-Coronavirus world. Though unfortunate, the COVID-19 outbreak has proven to be a test for Bitcoin’s safe-haven credentials, and it has performed extremely well.

Source: Kraken Intelligence – June 2020 Bitcoin Volatility Report

Gold and Bitcoin correlation became stronger as BTC recovered quickly, and it also defended its historic support levels. Additionally, Bitcoin accumulation statistics show that investors trusted the ‘crypto king’ to tide over COVID-19. Chain metrics, including hashrate, remained healthy throughout the pandemic. Glassnode reports that the percentage of BTC unmoved in the last three years peaked at 30.9 percent, thereby confirming the accumulation trend.

The rising correlation between gold and Bitcoin is highly bullish as BTC strengthens its mainstream financial credentials. In case the economy falters after the U.S. presidential election, this correlation is likely to strengthen further in the coming years.

Bitcoin and S&P 500 correlation – A rare and valued combination

Bitcoin is not just tied to gold; it is also increasingly following S&P 500. Rarely has an asset, such as a strong correlation with both the S&P 500 and gold at the same time. This means that investors not only view is as a safe-have storehouse; they also think of it as an investment.

Pandemic resulted in a massive increase in the correlation between Bitcoin and the S&P 500. The American S&P 500 index generally considered barometer of U.S. economic health and carries substantial global importance. A higher BTC correlation with the stock market also represents faster crypto adoption in mainstream finance.

Source: Santiment Insights

Bitcoin was best performing assets outperforming stocks in the S&P 500 by a mile. As savvy investors study correlations, they would undoubtedly diversify their portfolio to avoid risks. As correlation increases, so does the investor’s appetite for diverse assets meaning a win-win for BTC.

After the pandemic came the roaring 20s – The next decade holds the key

The 1920s was a decade of unparalleled prosperity. The pandemic ended, and there was a huge growth wave fuelled by cars, cinema, highways, healthcare, stock market mania, and much more. Industries were roaring back to life with new vigor as unemployment reached record lows. The technological developments were happening on a scale hitherto unknown in history.

The next decade holds the key to growth. The pent-up consumer demand, high savings, and new technologies will fuel the mother of all bull runs. People can’t be locked in their homes forever. Global healthcare giants are already on the verge of COVID-19 vaccines and other remedies.

The huge push in digitization has meant that cash is taking a backseat. Soaring digital transactions represents a tectonic shift in the way people trade, buy/sell, and transfer money. Trillions of dollars in stimulus and zero interest rates will further help the stock markets roar.

So, the common denominator between the 1918 Spanish Flu, gold, and Bitcoin is their rising correlations. The increasing correlation between S&P 500 and Bitcoin is only going to benefit Bitcoin’s price. Gold and Bitcoin correlation means that BTC safe-haven credentials are now stronger than ever. It is only a matter of time that 1918 Spanish Flu lessons are implemented, and the world will be back on its track – stronger than ever.

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