Since the coronavirus outbreak in China and now around the world, many have been wondering how it would affect the global economy. If you have been following the news, there is a high chance you have heard about the coronavirus that was first detected in Wuhan, China.
Coronavirus And Effect on The Economy
The virus, which has a very high mortality rate, compared to the flu, is quite easy to pass on and is now spreading across the world. Many have been wondering how it will affect the global economy. For instance, many have wondered how it will affect China’s production capacity, the global tourism sector, as well as supply chains around the world. With the threats continuing to mount, many investors believe this will cause lower than expected earnings, which would obviously be bearish for equity markets. The federal reserve is in an interesting spot, because for the first time in a while- simply shifting interest rates may have no economic benefit. Touching interest rates ( which are already at ground level ) is irrelevant if factories are not producing goods. The dow jones dropped over 1,000 points on Monday, which goes to show how much the U.S still depends on China.
Release of Central Bank Digital Currency
Some analysts have also argued that it could hasten the release of the Chinese CBDC. According to China Daily, a publication owned by the Chinese Communist Party, this is exactly what is likely to happen. The former president of the Bank of China, a major commercial bank in the country, expressed these sentiments. He predicted that the outbreak would most likely cause the central bank to hasten the release of the digital currency.
Li said that such a digital currency would offer numerous benefits to retailers by cutting down the cost of money transfers and increasing efficiency during transactions. Fan Yifei, the deputy governor of the Chinese central bank expressed similar sentiments. During a recent news conference, he said that the central bank would hasten its activities in the mobile payments industry. He noted that while services such as AliPay and WeChat Pay were already widespread, there should be efforts to encourage the adoption of online banking, mobile banking, and other avenues that offer customers financial services.
These comments come after it emerged that China was quarantining banknotes to prevent the spread of the coronavirus. In Hubei province, the government has distributed 600 billion worth of notes while destroying the notes that are in circulation in the province.
Coronavirus Effect on Bitcoin
Traditionally, the announcement of the release of a CBDC has driven down the price of BTC. However, that is not the only effect on Bitcoin in China. Authorities in the country have begun shutting down Bitcoin mines due to the fear of coronavirus. One miner wondered how shutting down his mine in a remote location in China was going to stop the spread of the virus.
The effect on the Bitcoin hash rate is already being felt. Since January, the hash rate has stagnated. It occurred at around the same time that Chinese authorities began cracking down on Bitcoin mining. Besides that, several crypto conferences have been moved away from China or suspended. One of the most notable ones to be shut down was Token2049, which was supposed to have taken place in Hong Kong. It has since been moved to October.
However, the price of Bitcoin was also down around -2% on Monday. This shocked many investors who believed Bitcoin price would rally during traditional market turmoil. As mentioned in a previous market report, Bitcoin price has historically been uncorrelated to traditional markets. It’s important to understand that this isn’t always the case though. With volatility Bitcoin still faces, it will still have its days where the hedge just isn’t there. People forget that during market turmoil, it’s still inefficient and timely for people in other countries to successfully deploy capital to Bitcoin sometimes. This is why Bitcoin will periodically rally after the fact, which is something people will be watching for going into Tuesday. Gold on the other hand surged today, as it continues to hedge market uncertainty. It’s worth noting that Gold recently surpassed 7 year highs.
Image Source: Pixabay