There is a lot of news coming out every day regarding COVID-19 and the current situation including dire changes in the financial market. One article in particular went in depth analyzing the events related to the coronavirus spread and what it means for the crypto industry.
The author linked to an interactive web-based dashboard that tracks COVID-19 from the CSSE at Johns Hopkins University which shows that almost 83 thousand people are infected in China while the number of confirmed cases registered outside the country has already surpassed 1.5 million. Italy, the USA and Spain, where the death rates are considered to be the highest so far, have suffered the most. With its rapid spread and the fear that it inspires, COVID-19 has effectively ground the global economy to a halt, penetrating into all sectors of financial activity, including that of cryptocurrency.
Many enterprises, including mining companies which make up 65% of the whole BTC mining power, are under imminent threat of bankruptcy because of logistic constraints, dwindling reserves, insufficient cash-flows and consequently – obstacles to lending and debt restructuring assistance. The financial market was also hit by a roughly 30% plunge in crude oil prices on March 9 after Russia decided not to support the rest of oil producers in cutting output. This caused US indexes to drop by more than 6% (Dow Jones finished its worst day since 2008 down 2000 points and S&P 500 ended down almost 8%) together with the entire US treasury yield falling below 1% for the first time in history.
However, oil prices started to recover on March 19, with U.S. West Texas Intermediate crude jumping up by more than 23%. International benchmark, Brent crude, is now surging almost 17% to settle at $33.85 per barrel. Some saw this as a sign of hope that the financial market will gradually correct itself.
COVID-19 is endangering the US dollar’s year-long hegemony as well due to the Federal Reserve cutting interest rates to near zero in an attempt to shore up the country’s economy. Despite the European economy already being in a recession, it benefited from negative-correlation with the dollar and edged higher against the British pound. But economic predictions right now for the US and Europe are decidedly bleak. Bloomberg has estimated that the losses that COVID-19 will cause to the global economy will number about $2.7 trillion.
Despite many thinking of Bitcoin as a “safe-haven” asset, it also collapsed by around 50% and the value of the entire DeFi market dropped from more than $1.2 billion in mid-February to almost $738.7 million today. According to CoinMarketCap, the first digital currency, which still constitutes around 65% of crypto market value, is now trading at almost $7350 after starting the year at around $7000 and then rebounding somewhat from the crisis-induced crash to below $4000 two weeks ago. Altcoins have been volatile as well: many major cryptocurrencies have been trending helplessly down between 30% and 40%. In such circumstances it’s not surprising that investors and traders are deciding to wipe crypto from their investment portfolios.
On the first full weekend of March Bitcoin passed through 3 stages on its way down, and it took the price less than 2 days to fall from $9200 to $8291, temporarily lingering at $8900 and $8700 intermediate values on the way down. This plunge resulted in $92 million worth of BTC contracts being liquidated within a single hour on the derivatives platform BitMEX. After the total erasure of up to $680 million worth of XBT/USD long positions, data portal CryptoCompare confirmed the beginning of massive panic-selling with an average execution of over 11k traders getting rid of their spot longs per second across 230 crypto exchanges. No sooner had the crypto community started to get over this hard blow than the World Health Organization (WHO) officially declared COVID-19 a pandemic and the crypto market regressed again with prices falling by 4% and 7% for Bitcoin and other top 20 digital currencies (except stablecoins) respectively within 24 hours of WHO issuing their statement. This seems to have been the moment when people got wise to the threat posed by the virus as a life and economy upending disaster and not some cooked up tool of political manipulation. Binance CEO Chanpeng Zhao reacted by saying that the quickly spreading COVID-19 is not “just a hoax” and urged the industry to avoid panic, but to be prepared for reality. And his words probably would have had a calming effect if Whale Alert, a tracker of large cryptocurrency transactions from and to exchanges, didn’t report a huge transfer of over 47.6 BTC worth around $292.2 million from an unknown wallet to Bittrex exchange that day. This gave the rapid sell-off another birth and led to Bitcoin losing approximately $3000 and more panic transactions.
The author cites senior commodity strategist at Bloomberg Intelligence Mike McGlone who believes that the cryptocurrency downtrend is temporary, mentioning that both gold and Bitcoin have suffered from the massive sell-off and “the quasi-currency companions should regain momentum once one of the swiftest declines in S&P 500 history subsides.” Thus, BTC may well rebound as soon as gold is up again, and the rise may be spectacular.
As we can see from the data we have, the COVID-19 pandemic itself isn’t affecting the cryptocurrency market as strongly as all the FUD (fear, uncertainty and doubt) and our emotions do. Of course, with everything that has already happened, it’s a bit complicated to stay level-headed and objective, but we have to try in order to give digital assets their best chance to rebound from the virus.
Some positive predictions gathered by the author suggest that the end of crypto is far from being imminent. And here is how the industry is developing to help Bitcoin survive.
1. Mass adoption is key
One of the WHO’s recommendations was to use contactless payments because physical cash might be a means of transportation for COVID-19. And that’s exactly the environment Bitcoin needs to gain popularity against collapsing equity markets. The pandemic is already accelerating legalisation processes for crypto in countries like Germany and South Korea along with central banks’ adoption of digital currencies in countries like India. China is taking efforts to issue its digital yuan as soon as possible: the currency is intended to be efficient, convenient and profitable which sounds good given today’s realities. There has been a major uptick of buying Bitcoin in Iran supposedly due to banking hours getting reduced to mornings only. Yet utilizing crypto and blockchain on a government level partially depends on the demand of retail markets. Interlapse Technologies CEO and Coincurve co-founder Wayne Chen insists that we must do our utmost to make Bitcoin into more of a real currency: “If Bitcoin was a payment method that could be used on Amazon, it would be much more sought after.” This, together with Facebook’s Libra and Telegram’s TON projects, has the potential of turning crypto mainstream within the next 2 years, as Deutsche Bank suggested in a recent report.
One more trend to support crypto adoption can be identified in the proliferation of different kinds of crypto charities. The Giving Block has recently created its #cryptoCOVID19 alliance to give donations made in ETH and DAI for those suffering from Coronavirus and other diseases. The initiative is also working to “tell the new crypto story.” Crypto enthusiasts can also donate to artists with the help of Bandcamp or to developers of 3D models of COVID-19 from Folding@Home, who are assisting greatly in the quest for a vaccine.
2. Decentralization is still in play
After the upcoming halving is over, those mining farms located outside of China may become more relevant and cost-effective, which would be great for Bitcoin network decentralization. This is what the co-founder of an open source tool for analyzing all BTC transactions called BitCluster Sergey Arestov is convinced of.
What else is important, is that the macroeconomic factors are truly skewed in favour of crypto, as the managing partner of Exante crypto funds, Alexey Kirienko has assured people. He also doubts if there are any more reliable solutions than crypto “which, unlike banks, is immune to en masse transaction denial” when combating COVID-19 and predicts Bitcoin’s going to flourish in the future anyway. The CEO of the Stasis.net tokenization platform Gregory Klumov agrees with his statement, pointing out that Bitcoin will grow parallel with the demand for assets that are deflationary in nature, as in times of financial crisis the money supply is increased and that inflates the prices of goods and services.
3. An upward trend in trading volume
Since the pandemic came into its own, there has been an illustrative uptick in over-the-counter trading volume, which has been confirmed by Michael Leon, who is a trader at Althena Investor Services based in Chicago. This means that market players are gaining positions.
On March 1 decentralized exchanges (DEX) on Ethereum registered their highest monthly trading volume, estimated at over $372 million in February, which is more than a 60% increase compared to January, as Ethereum analytics firm Dune Analytics reported. This February’s rate hit the all-time-high volume of $358 million recorded in July 2019.
4. Stablecoins’ finest hour
During the last few weeks the demand for stablecoins, especially for Tether (USDT) and USD Coin (USDC), has risen due to a great influx of funds from investors and regular traders who now prefer to use stable digital currencies instead of playing with fire while operating with risky assets. CEO and co-founder of USD Coin issuer Circle Jeremy Allaire revealed that USDC has already reached a new record level of $568 million in circulation, tweeting: “Fascinating to see ‘flight to safety’ within the crypto macro market, but also demand for high-quality USD liquidity for markets.”
Some smaller coins, such as Binance USD (BUSD) and Paxos Standard (PAX), have also attracted significant inflows which has allowed them to improve their performance and market cap ratios. Allaire forecasts that the necessity for digital dollars that are “fast, global, secure and cheap to use” will increase significantly: “People and businesses will want an architecture where they can make and receive payments with less counterparty risk and more security.”
5. Sensible Look at the Situation
To sum up, the author accepts that there’s no definite answer as to whether Bitcoin will be able to regain its status as a protective asset during the ongoing turmoil because, unfortunately, it revealed itself as having a very strong correlation with the traditional stock markets which have been falling dramatically. The medium and long-term perspectives of the crypto industry remain blurred and how long it will take to clarify them is still uncertain.
What is needed now is to assess the pandemic’s spread and return to the lost sense of normality. Some interpretations of new data regarding COVID-19 infections are not the most negative of predictions. Nobel laureate and biophysicist at Stanford, Michael Levitt believes that the USA may go through the Coronavirus outbreak better than Italy, Iran and even China where we can witness a decline in the number of confirmed cases due to quarantine and social distancing measures. What is most impressive here is that Levitt forecasted this decline around 3 weeks before it became true, so it seems pretty plausible when he says that we have to control panic and then everything’s going to be fine.
So based on the data provided in this article, there are reasons to believe that normalcy will return to our lives. In the crypto realm the situation is not particularly different, so, if you can, bunker down and try to find ways of making the most out of these trying times.
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