Four months have passed since the first case of the novel coronavirus was detected in Wuhan City, China. The effect of the COVID-19 pandemic has been felt globally. From mass quarantine to a nationwide lockdown, the economy is facing a great stress test and is in danger of a collapse unless far-reaching reforms are implemented. As the world is still battling a highly infectious disease, no one knows how the cryptocurrency industry will be embroiled in the ongoing economic disruption. When the World Health Organization (WHO) officially announced the coronavirus pandemic in March, almost all investment vehicles responded with a decline. The stock market has had its worst days in the past decade, with commodities, corporate debt, and real estate. There has been widespread panic, leading to a massive sell-off in the traditional stock market.
The Correlation between Crypto and the Stock Market
Bitcoin (BTC) was created to have specific attributes that would make it far more comparable to traditional commodities, such as gold. For most of its existence, Bitcoin price has been pitched as an asset unrelated to conventional equities and the stock market. The cryptocurrency’s design was based on making it an asset that does not need to be printed or tied to some corporation’s value. These attributes have helped Bitcoin to gain the position of highly uncorrelated assets that investors seek to add to their investment portfolio, even if it is a small portion. However, all hell seems to be breaking loose in the financial markets due to the coronavirus pandemic. Unexpectedly, Bitcoin prices seemed to show signs of their correlation with the stock market, and if the trend continues, then it could sound the death knell for this relatively young virtual asset. It remains to be seen if Bitcoin could prove itself as a “safe haven” asset as previously promoted to institutional investors who seek to add diversity or reduce their portfolio risk.
In addition to the cryptocurrency market, blockchain startups may need help seeking venture capital funds during this period. Given the spread of the coronavirus and the uncertainty surrounding the global economy, this method of attracting investment may lose its appeal as Physical meetings have become impossible in the foreseeable months, and investors are more prudent with their investments than ever before.
The Crisis Could be a Big Moment for Crypto
One of the leading cryptocurrency exchanges, BitMEX, published an analytical report titled “Inflation is Coming” earlier in March, as they evaluated the ongoing impact of the coronavirus pandemic on the financial markets. The blog article outlines that the market crash brought about by the economic turmoil is likely to be as severe as the 2018 Great Recession, the 2000 Dotcom bubble, and the 1997 Asian crisis. However, one interesting point from the analysis indicates that Bitcoin may likely be a “winner” under a new global financial regime and that it could be the right moment to prove its worth to the broader financial ecosystem. For instance, there is growing evidence that the virus could stay on fiat currency notes for a few hours, preventing many people from using these physical monies for transactions. This concern could unexpectedly set a trend to promote digital payments, thereby boosting the adoption of digital currencies in place of the traditional forms of money, potentially driving the prices of Bitcoin and other cryptocurrencies and yielding profitable returns for investors.
However, for the general public who are not keen to invest, cryptocurrency may be too volatile to replace the more stable fiat currencies for everyday purchases. According to the same report by BitMEX, Bitcoin experienced a significant sell-off a week before the information was published, plunging to as low as $3,600. Fortunately, there is an ideal form of cryptocurrency that is gaining attention from governments worldwide and is expected to prove itself during this uncertain period. Known as Stablecoin, it is a form of cryptocurrency that is usually pegged to a tangible asset such as a commodity or fiat currency. Stablecoin could act as a bridge between the traditional financial system and the newer crypto-fuelled monetary system. According to a March article by Cointelegraph, stablecoins (such as USDT or USDC) have gained significant market share during the global market turmoil while the rest of the cryptocurrencies tanked, facing a significant drop in their market capitalization during the same period. The pandemic has also garnered an increased global interest and usage in stablecoins, be it for investment or purchasing reasons. Therefore, it is hoped that the market demand will increase interest in and understanding these digital asset classes.
Remote Work Becomes Commonplace
At the time of writing, many countries, such as Singapore, have advised their citizens to practice social distancing and work from home whenever possible. The measure may be counterproductive to many businesses, especially the retail and hospitality sectors. As a result of stringent measures to curb the further spread of the virus, many companies were forced to operate and eventually get used to the remote working culture. Fortunately for many startups, especially cryptocurrency projects, employees and customers have actively embraced remote interaction since the industry’s inception. Thus, the gradual shift towards remote work will positively affect the cryptocurrency industry since they are experienced in developing in this format without compromising the quality of the work process. More often than not, the cryptocurrency industry may have already mastered the remote working technique for effective communication across different time zones while maintaining productivity and remote command management.
Cryptocurrency Conferences Cancelled
As remote working became commonplace during this period, many offline events, such as cryptocurrency conferences and meetups, were canceled for fear of the coronavirus pandemic. The cryptocurrency industry was no stranger to large-scale crypto events, as there was a huge demand worldwide within the community to have crypto-related events for networking, learning, and other purposes. Before the worldwide restriction, there was a particular event known as the Ethereum Paris Conference (held from the 3rd to the 5th of March), which was hit with numerous infected COVID-19 cases and included several key opinion leaders (KOLs) of the cryptocurrency community. Since then, all mass gathering events, such as the Ethereum Paris Conference, have been canceled or postponed in the hope of “flattening the curve.” Although such decisions are likely to deal a heavy blow financially to the event organizers, the industry has worked out an innovative way of organizing events online instead. For example, a virtual reality-based crypto conference called BlockDown 2020 has many features similar to an offline discussion, including speaker panels, fireside chats, company booths, networking areas, and more. The virtual meeting even sees a strong lineup of prominent cryptocurrency figures from companies such as Binance, Shapeshift, Neo, and Bitcoin.com. If the virtual crypto events prove successful, they could elevate the cryptocurrency community’s status as an innovative industry and propel cryptocurrency prominence to the mainstream market.
Cryptocurrency to Emerge Stronger in the Face of the Adversity
While the world is still battling the coronavirus pandemic, no one knows for sure when the global crisis will end. Economies could recover once there is a vaccine, or the abovementioned containment measures were effective. Either way, the international and cryptocurrency markets will inevitably struggle to overcome the foreseeable months of uncertainty. However, some experts are quite optimistic about the cryptocurrency market during an economic downturn. The coronavirus impact on Bitcoin may be limited to price fluctuations. At the same time, the crisis may accelerate the adoption of cryptocurrency through the eventual acceptance by the traditional financial market and central banks’ push for digital currencies instead of physical fiat monies.
The pandemic occurred when interest rates were historically low due to an ongoing US-China trade war, the Middle East, and the Oil Crisis. In addition to this, people in many countries are growing wary of their governments. Such a series of events could likely become a pivotal tipping point for cryptocurrency adoption since Bitcoin and other cryptocurrencies do not operate under a single authority (decentralized). Therefore, the best Bitcoin mixer experts team believes that investors who felt subjugated by the actions of their governments may seek solace by switching to cryptocurrencies, which could ensure that their finances are entirely within their control, thereby gaining momentum toward mass adoption of cryptocurrencies.