The coronavirus pandemic is the “black swan of 2020”, leading financial markets into a level of decline not seen since the 1987 recession.

Black Swan Events

According to the United Nations, Covid-19 has cost the global economy $50 billion in just exports in February alone. A recent Bloomberg estimate sees the cumulative damage to the entire global economy coming in at around $2.7 trillion.

we’ve experienced one of the most severe stock market crashes in modern times. Indeed, the current sell-of has been one of the sharpest declines in history since 1929.

history of sell-off

GOODS

Last month Chinese manufacturing activity dropped to all-time lows. This is certain to affect the nations that China imports intermediate goods from and exports intermediate goods to.

Intermediate goods are goods that are used in the production of other finished products and can range from hard and soft commodities such as metals and soy beans, through to plastics used in manufacturing and active pharmaceutical ingredients (APIs) used in the production of drugs, all the way to finished car engines and LED screens.

According to the World Bank, China imports the greatest amount of its intermediate goods from South Korea, Japan, the United States and “other” Asian states. Additionally, it exports its greatest volume of intermediate goods to the United States, Vietnam, South Korea and India. The coronavirus is already affecting these deeply intertwined trade relationships and is almost certain to have a far-reaching influence on entire supply chains and final markets of a plethora of finished goods.

We’re also seeing the first signs of nations hunkering down to protect their own best interests. India’s restriction of pharmaceutical exports is a perfect example of this. 

CRUDE OIL

We’ve now seen historic drops in both the stock and energy markets in a couple of weeks. It was widely expected that coronavirus would cause a big shock to global oil markets.

It will potentially have immense consequences hurting many areas of the global petroleum industry but there are also likely to be far broader geopolitical effects. For one, this could be the event that breaks US shale oil. It’s widely known that US shale firms are highly over-leveraged and unable to maintain profitability at oil prices below $40 per barrel. We could be looking at the end of this recent period of American energy self-sufficiency, which is problematic to say the least. The interconnections and possible implications are seemingly endless.

S&P500

The S&P dropped -30% in less than 3 weeks.  Recently we have seen what looks like a pronounced correction, with its biggest weekly gain since 1974 as the Federal Reserve delivered another wave of stimulus to cushion the economic impact from the Covid-19 pandemic, but we could be witnessing the beginning of something worse yet.

Indeed, the index, was showing really weak crossed the SAMA200 (big players alert) going well below it, differently it did last year bouncing on it. 

BITCOIN

 However, blockchain may still have a chance to flourish during these times of crisis.

The recent COVID-19 outbreak is an event at risk of a so-called “black swan” tail because it is an anomalous value. it is necessary to recognize the ability of Bitcoin (BTC) to hedge the risk of the stock market, in fact, some economists and researchers refer to Bitcoin as “digital gold” and exposed to the risk of tail only within the cryptocurrency markets, but it is not exposed to tail risk compared to other asset markets, such as equity markets or gold.

Thinking positive of blockchain to Turn Crisis into Opportunity! 


This article by Erol User has been published exclusively by the BLOCKCHANCE Media Council.

Erol User is an experienced Chief Executive Officer with a demonstrated history of working in the investment banking industry. Skilled in Business Planning, Corporate Finance, Entrepreneurship, Strategic Planning, and Business Development. Strong business development professional with a MBA, MSC focused in Economics, Business, Finance, Renewable Energy from Sankt Georg Austrian College, University of Istanbul Faculty of Economics, Harvard Business School and International Leadership Academy Japan