How Coronavirus Affects Cryptocurrencies

The deep impact of COVID-19 has been felt across all economies. Ever since the global outbreak, the number of cases and deaths has been climbing consistently bringing many industries to a complete standstill. Naturally, the volatility of investment markets has been brought to the forefront with the global stock market responding negatively to the spread of the pandemic. Amidst the global economic conditions, how can coronavirus affect Bitcoin? Let’s find out!

Blockchain and cryptocurrency also have not been spared and this can be seen in the coronavirus effect on bitcoin, at least in the initial phase. But, in what manner does a global pandemic crisis, the size of COVID-19, impact the cryptocurrencies? Alternatively, with traditional markets suffering and governments unable to successfully contain the pandemic’s impact on the economy, are people seeing crypto in a new light? The recent surge in cryptocurrency prices and positive developments pertaining to regulatory compliance has brought us closer to mainstream adoption. Here, we seek to address the questions along with the possible future of cryptocurrency in a world that is transforming faster than ever.  

COVID-19 Effect on Cryptocurrency

Like the rest of traditional investment markets, the cryptocurrency markets also suffered severely from the initial impact of COVID-19. At that stage, the world was not affected by a financial crisis. Therefore, the cryptocurrency market crash was a direct result of the liquidity crises created by investors. Nearly all financial crises of the past were first impacted by investors panicking and converting all of their liquid assets into cash. The coronavirus pandemic started escalating all across the globe from the last week of February. Subsequently, this impacted the cryptocurrency market with investors selling their cryptocurrency tokens. The price of Bitcoin was around $9000 in the first week of March dropped to $4800 in a span of 10 days. Bitcoin has often been referred to as the ‘digital gold’ meaning that like physical gold, bitcoin can also be held onto for its value stores. However, this has not stopped investors from questioning the perceived notion of cryptocurrency as a safe investment haven. Moreover, the drop in prices was not restricted to Bitcoin. Other prominent cryptocurrencies including Ether and Ripple also suffered by dropping more than half in their value.

Crypto Scams

The initial spike in COVID-19 reports was accompanied by an increase in the worldwide reporting of cryptocurrency scams as well. This has adversely affected the perception of people concerning cryptocurrency. However, with the market projecting steady growth after the initial dip, potential, as well as current investors, are somewhat reassured on the future of the cryptocurrency trade. In fact, the consistent rise in cryptocurrency stocks is also attributed to the investors availing of the low market situation and increasing digital assets in their crypto portfolio.  

Current Performance of Cryptocurrency

While crypto, like all other financial markets, tanked considerably as a result of the coronavirus crises, it continues to perform better than the stock as well as commodity markets. What was the coronavirus effect on Bitcoin? Well, it enjoyed harper gains even when the stock market continued to tank. While Gold is up by nearly 11% since the beginning of 2020, Bitcoin’s returns are more than 30%. Moreover, the growth in current prices is not limited to Bitcoin. Ethereum, the second-largest cryptocurrency by market capitalization, rose nearly 42% in one week and crossed the level of $400 in the first week of August for the first time in 2020. Decentralized Finance has been on an upward trend since the beginning of 2020. The value of the amount locked in the DeFi industry has increased from nearly $1 billion in February to $4.3 billion in August 2020. Some of these DeFi tokens have registered a growth of more than 600% in a span of 6 months. The current price rally, as well as interest towards investments in digital currencies, have given a new paradigm to the cryptocurrency industry. The current scenario suggests that cryptocurrency is likely to gain more trust with investors after the current crisis has passed.  

Will Cryptocurrency Ever Recover?

COVID-19 has certainly brought cryptocurrency sustainability under the scanner. On the other hand, there is an increasing pressure on the financial ecosystem to adopt a more and more digital outlook in the wake of the current crisis. Furthermore, even governments and major corporations have started recognizing cryptocurrency as an innovative instrument in the financial ecosystem. In a recent development, even the U.S. banks are now allowed to offer custodial solutions to cryptocurrencies. The letter recognizes cryptocurrency’s potential to innovate banking, transactions, and financial services. Apart from the recent uptrend in the market, such collective steps suggest that cryptocurrency is in fact on the verge of mainstream adoption.  

The Bigger Picture

The coronavirus pandemic will not be around forever, however, the benefits and rewards of cryptocurrency are certainly longer-lasting in comparison. Therefore, the answer to the question, ‘will cryptocurrency ever recover?’ is a simple “yes.” This is because the underlying reasons why investors are attracted to cryptocurrency remain unchanged. Investment in the cryptocurrency is viewed as the perfect diversifying option for your portfolio. This is because it has a bare minimum relationship with alternative and traditional asset classes. However, the initial falling of cryptocurrency in tandem with stocks has raised some concerns. While this may be an aberration to the general rule, it remains to be seen whether the most notable advantage of bitcoin remains true to attract investors in a post-COVID-19 era. And this is the key to finding a more concrete answer to the question that is on every investor’s mind - “when will cryptocurrency recover?” Having said that, most crypto experts insist that the markets are largely non-correlated as the correlationwas relevant for a very short while.  

Coronavirus Effect on Bitcoin - Predictions for the Future of Cryptocurrency

Blockchain applications, cryptocurrency investments, and the market is drawing attention from prominent corporations and institutional investments. This study suggests that nearly half of institutional investors are looking to add digital assets in their investment portfolios. Even with the pandemic in the picture, the relevance of cryptocurrencies as investment vehicles has only grown more significant. Moreover, cryptocurrency experts are predicting an increased level of consolidation in the cryptocurrency markets. The crisis is also likely to filter out crypto platforms that can sustain and maintain stability from others that might go under due to a lack of preparedness for such a crisis.

In Conclusion

The coronavirus effect on bitcoin remains to be seen as the rest of 2020 unfolds. This is, after all, the first time ever that cryptocurrency has been subjected to a crisis at the global level. There has been no precedent of the impact of a pandemic where bitcoin is concerned. While the initial signs seem to show a recovery that is faster than the remaining financial sector, cryptocurrency markets are certainly performing better than expectations.

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