Coronavirus and Cryptocurrency: What Should Investors Expect?
As the coronavirus crisis develops into a full-on pandemic, crashing global financial markets, what should investors expect from the cryptocurrency market, which is still in extremely early stages?
On February 20th, the S&P 500 began to drop. The markets declined slowly at first, before rapidly dropping on March 4th, and showing no sign of stopping as of March 16th. As fears of the novel corornavirus continue to grow, the S&P 500 is down over 26% in the past 30 days, marking the largest drop since 2008.
While Bitcoin historically has a loosely inverse relationship with the stock market, the cryptocurrency also experienced a significant drop down to as low as $4100, its lowest price since crypto’s huge slump in early 2019. This sudden downturn may be partially linked to coronavirus fears, but it seems incredibly likely that it was at least partially triggered by a massive $150 million cryptocurrency liquidation by BitMEX, the largest volume Bitcoin derivatives trading exchange in the world.
While the initial impact of the coronavirus on world financial markets has become clear, the WHO director general warns that the crisis may still be in its early stages. In a statement released on March 4th, Tedros Adhanom Ghebreyesus warned that “as you know, even as the Ebola outbreak is winding down, the epidemic of COVID-19 is becoming increasingly complex. There is now a total of 92,943 reported cases of COVID-19 globally, and 3,160 deaths. As I have said before, this is a virus with serious impact on public health, the economy and social and political issues. Our view continues to be that containment of COVID-19 must be the top priority for all countries, but at the same time, countries should be preparing for sustained community transmission.”
So, as the coronavirus crisis continues, with no real estimates on when it will be resolved, what should investors in cryptocurrency expect? Unfortunately, since this is such an unprecedented global issue, nobody knows for sure, but many analysts and insiders have made tentative predictions.
Billy Bambrough, a crypto-focused Forbes contributor, presented a theory very early on. Published on February 3rd, Bambrough writes that uncertainty in global financial markets traditionally bodes well for Bitcoin. Since Bitcoin’s early success was a response to the financial crisis of 2008, a new financial crisis could see more investors driven towards Bitcoin as an escape from volatility in traditional markets. He cites Jehan Chu, a partner at blockchain investment and advisory firm Kenetic Capital, who predicts that “as trust in global institutions and markets continues to deteriorate, we will see highly mobile digital assets like bitcoin explode in value.” While Chu’s early prediction seems to be disproven by recent price movements, it is still very possible that Bitcoin reverses its downward trend as the crisis drags on.
In addition, YuanJie Zhang, the COO of Conflux, believes that Bitcoin mining, at least in China, has remained mostly unaffected by the coronavirus outbreak. He writes that “I don’t think it is a big risk for the mining farms because mining farm does not take a lot of employment. I think most of those private money farms, they continue to work and they don’t hire a lot of people. That is not something that requires a lot of face to face contact in order to be managed.” As long as Bitcoin mining is uninterrupted, the cryptocurrency should remain completely functional, which hopefully translates to a minor resistance against massive price drops.
Alternatively, the coronavirus outbreak has had a significant impact on product development and technological developments in the blockchain sphere. In a February 28th series of interviews conducted by CoinDesk, it was found that many companies, especially those based in China, have transitioned completely to working remotely, which slows many aspects of their business. For example, the Switzerland-based exchange ZB.com, which serves over 10 million users and boasts over $3 billion in average daily trading volume, has experienced difficulty upgrading its services. Aurora Wong, the vice president of the exchange, said that “the outbreak is likely to slow the exchange’s technical upgrade to a new version. The upgrade could include front-end mobile apps for users as well as the back-end trading engine.” Technical innovation and upgrades are critical to the blockchain industry’s continued success, and disruption in that innovation for even a few months could be a major setback for the industry as a whole.
In the most realistic analysis, published on March 16th, Tony Spilotro of NewsBTC performs a brief analysis of traditional financial assets versus Bitcoin, before writing that “With the lack of correlation, and such a new, emerging asset class, it is not understood yet how Bitcoin and crypto will ultimately perform in a recession. They were designed in the wake of a major recession, as a means to avoid them in the future. However, the technology may be too young at this time to serve this purpose. Only time will tell the truth about what happens to Bitcoin and the rest of the crypto market as coronavirus concerns take hold of the world.”
Realistically, nobody knows exactly how Bitcoin will react to increasing concerns over the coronavirus. However, it is clear that Bitcoin’s overall functionality seems incredibly likely to survive and thrive during the outbreak, which could be enough to carry the cryptocurrency through the crisis. While some technological innovation may be put on hold due to the necessity of remote work, the existing infrastructure is still functional, and businesses should have no real difficulty maintaining operations for the extent of the outbreak. Time will tell how exactly cryptocurrencies react to this crisis, but it is certain that how the market reacts will be a significant indicator of cryptocurrency’s viability on a global scale.
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