How Coronavirus is Affecting Bitcoin
The future has always been crazier than imagined. Bitcoin is touted as a great safe-haven asset. Unfortunately, coronavirus is affecting predictions. Coronavirus has gripped economies around the world as economic activity drops and value bleeds from markets. In America alone, the shockwaves of the epidemic can be greatly felt. A record of 3.3 million Americans filed for unemployment benefits. This is but a glimpse of the proportions of damage that have resulted from the coronavirus epidemic.
Coronavirus Affecting Bitcoin and Investors
During this period, bitcoin has taken more hits than many people would have expected. It was thought that while stock markets and conventional financial markets bleed during times of great economic uncertainty, bitcoin would increase in value as more people recognize it as a safe haven asset. Many people are now filled with doubts. The cryptocurrency markets absorbed deep blows while weak hands sold off their holdings.
Over only two days, bitcoin’s value dropped below $4,000 in the midst of growing chaos spurred by the coronavirus. The cryptocurrency had been trading near $10,000 in February, after a long period of slow growth. Its price declined as the outbreaks of the virus got worse.
The Safety of Cash
Bitcoin makes a name for itself as an asset that is uncorrelated to the stock market. Records, however, show Bitcoin following similar price trends to the stock market. Bitcoin could lose its reputation as a safe-haven asset if such trends continue.
“Bitcoin’s recent price action is primarily a result of the coronavirus outbreak affecting global markets and driving investors towards the safety of cash,” Joe DiPasquale, CEO of BitBull Capital, says. “With this sharp decline, Bitcoin’s potential as a safe-haven asset is being questioned, but we believe it is too early to seek any correlations between Bitcoin and other asset classes.”
The cryptocurrency was made during a period when the shocks of the 2008 financial crisis could be felt around the world. The crisis led many to bitcoin. Many of the early adopters of the cryptocurrency saw utility in a medium of digital value transfer that could act as a hedge against the financial collapse of an economy. A growing number of members in the community see bitcoin as an experiment at best. More central banks are working on digital currencies to replace bitcoin.
Many proponents of bitcoin in the early days of the digital currency sought self-sovereignty. This was a key pillar for economic freedom from an era of increasing wealth inequality and a disappearing middle class. Despite the rising levels of anxiety and pessimism in these times, many proponents of Bitcoin still believe there are many reasons to invest.
Stock markets have experienced historic declines that top records in the history of markets. The market has changed by significant proportions. While it is hard to tell if the economy will definitely follow the declines of the stock markets, it gives rise to another reminder to diversify investments with an improved business strategy.
There is hope that companies may use this time to innovate and in doing so will end up stronger and more resilient to unexpected shocks in the future. More innovations have arisen to improve the utility of digital currency technology in these times. More small and medium businesses have to try and change their business strategies to embrace the digital landscape.
Despite recent crashes, bitcoin could experience significant highs. Optimists point to a halving event, a resilient China, and consistent strides of innovation by large companies.
Tom Lee points out that cryptocurrency is a network-based value asset and a disruption to the financial system. This makes it great as a hedge against the traditional financial system which is losing value at the moment. However, cryptocurrency still depends on people actually having money to invest in it. In a situation where people are losing jobs and losing value in investments, they have less purchasing power required to invest in more bitcoin.
— Michael Novogratz (@novogratz) March 13, 2020
The effect of the coronavirus on the economy is unpredictable. Some people argue that the virus could change how supply chains operate around the world. This could increase or decrease the value of cryptocurrencies. In some regions, more people may find the need for a borderless and cheaper financial instrument. Others, however, may have a greater dependence on state-issued digital currencies.
“As governments across the world impose drastic public restrictions to halt the spread of the virus and financial authorities struggle to implement measures to limit the economic impact of COVID -19, investors are clearly feeling overwhelmed with bad news,” says Simon Peters, eToro analyst.
Holders of bitcoin face many questions to ask themselves and others during these times. Bitcoin was able to recover to $6,000 despite losing a lot of steam earlier. The $2 trillion fiscal stimulus package presented by the US government will provide cash to pick up the economy. A lot of this cash will inevitably find its way to cryptocurrency markets.
In recent times, more countries have finalized regulations to determine how cryptocurrency is used in their economy. This marks an important shift. More nations release digital currencies to make it easier to implement monetary policy. It is likely that increased use of these will increase the interest of people in bitcoin and related cryptocurrencies.
Nations introduce new global standards for anti-money laundering and counter-terrorism. New standards make bitcoin more attractive as a store of value. Bitcoin, unlike many financial systems under the hand of regulators, provides a system that does not require a middle man or central regulator. With more indirect costs of regulation, more people and financial institutions will find ways to circumvent the woes of regulations. More e-commerce businesses will seek new payment gateways for their operations.
There are many factors to consider apart from coronavirus, which will impact how the economy and bitcoin fare in the coming months. From oil prices to new technology, the possibilities are endless. The Bitcoin halving looks to impact prices in the future. If the halving saves the day, those who buy at record lows will see many benefits.