As Fed Contemplates Coronavirus-Prompted Easing, Bitcoin Traders Bet on Halving

Such action by the Fed could, in theory, help bitcoin prices since lower rates would likely reduce the appeal of income-yielding assets such as U.S. Treasury bonds, according to analysts tracking the 11-year-old cryptocurrency.

Bitcoin prices are down 14 percent since Sunday, on track for their worst weekly performance since mid-November.

Analysts and traders in the nascent market have debated whether bitcoin should trade as a hedge against malaise in traditional markets, or if it's more vulnerable to a sell-off alongside riskier assets like stocks and emerging-market currencies when the global economic and market outlooks darken.

Some investors say bitcoin is mostly uncorrelated with other asset categories, sometimes trading in sync with stocks and other times in opposition.

Haven Bet vs. Halving Bet.As a feature of the currency's original design, the pace of new supplies of bitcoin issued to the decentralized network gets cut in half every four years.

The next such event - known as the halving - is expected to take place in May.That automatic supply tightening, encoded in the software, differentiates bitcoin sharply from human-led monetary-policy easing by central banks such as the U.S. Federal Reserve.

The cryptocurrency's price jumped 94 percent last year, roughly triple the gains in U.S. stocks; despite this week's pullback, bitcoin is still up about 19 percent so far in 2020.For now, the bitcoin market might be too immature for large investors with diversified asset portfolios to use as a hedge against a financial crisis.

"We see a lot of these global actions having some impact on bitcoin, but there's also things that are happening in the bitcoin network, and that could have a larger impact than the Fed cutting interest rates," says Joe DiPasquale, CEO of the cryptocurrency-focused hedge fund BitBull Capital in San Francisco.

"I'm still bullish for bitcoin for the year, and a major reason is the halving."

Since cryptocurrencies are relatively new and their prices can be extremely volatile, bitcoin is still generally perceived as a risky asset, Cipolaro said.