How the Corona Crisis Affects Cryptocurrency?

The corona crisis has caused global turmoil since its outbreak early in the year 2020. At the time of writing, there are more than 39 million confirmed COVID-19 cases with over 1 million fatalities reported, as per the World Health Organization. The worldwide outbreak which was officially labelled as a pandemic on March 11, has significantly impacted global economies.

With global markets in turmoil, oil prices falling, stocks depreciating and oil prices declining, the cryptocurrency market has not received any special treatment. Early in February, bitcoin was valued just a little over $10k, before shockingly dipping by more than 60 percent on February 13, 2020. Similarly, other altcoins such as ETH, BSV, BCH and many others were also subjected to the misfortunes of the novel virus.

As experts predict the arrival of the second wave of the pandemic, in this article, we will explore how the virus, which began in China's city of Wuhan, affects crypto assets.

Cryptocurrency market volatility

The cryptocurrency market is notoriously volatile, and it is associated with very sharp price fluctuations. During the months when the pandemic was on its peak, the situation was not different. Early in January 2020, the first COVID-19 case outside China was reported in Thailand. Early into Feb, the virus received its official name from the World Health Organization.

Shortly afterwards, the world markets, including the digital assets market began declining, shedding more than 50 percent of their value between February and March. As per Coinmarketcap data, the total valuation of cryptocurrencies fell from $308 million to lower than $118 billion between February 14 and March 12. The largest cryptocurrency in the world, bitcoin, fell from $10,400 to almost $4000 during the time. Virtually all the other cryptos followed the same trend.

At some stage, cryptocurrencies and the stocks followed the same trend as they declined in value. Nevertheless, the connection collapsed, with the leading cryptocurrency undergoing a sharp price breakout as stocks stagnated. In South America comparing 2019 to 2018, analysts observed that as economies continue to suffer, so Bitcoin trading volumes have hiked.

Bitcoin's haven status queried

Some analysts and economic experts have labelled bitcoin a safe-haven asset at times. They have characterized it as an asset that investors find solace in times of global uncertainty. For instance, back in 2013, when people grew worried about the feasibility of Cyprus' banking structure, bitcoin's value increased by over 80 percent in less than 30 days.

Earlier this year, when investors across the globe got freaked out by the coronavirus crisis, the subject of bitcoin as a safe-haven asset came into the picture. The stocks market was in chaos in March, with the wider market declining its worst since 1987. Bitcoin shed about 60 percent of its value back then, raising eyebrows.

Diversification issues

One key attraction of cryptocurrencies as a general proposition is that they do not coordinate with traditional financial assets like bonds and stocks. Chris Burniske widely researched this topic in a whitepaper he co-authored titled "Bitcoin: Ringing the Bell for a New Asset Class."

Although unrelated assets bolster diversification, the value of bitcoin depreciated massively at a time when the stock market saw a significant decline. However, it is noteworthy that the situation where bitcoin and the stocks are shoulder to shoulder could merely be an abnormality.

The crypto industry, especially stablecoins, have recorded a massive growth this year. Many have linked the development of the sector to increased interest in DeFi among crypto market players while others think this is due to the large inflow of fiat currencies into the crypto market.

Bottomline

The novel coronavirus pandemic has had a significant impact on the world's economy and global markets. As a result, many businesses have closed down business, and assets have depreciated. Cryptocurrencies have not been any different as well. Most of them declined in value, following the same trend as traditional assets.

Although the majority of people have described bitcoin as a safe-haven asset during times of world uncertainty, its movements during the pandemic in tandem with traditional assets weakened the discernment. As such, the idea of bitcoin being used as a diversifier was also put into doubt. However, its behaviour of correlating with stocks at the time might have been an anomaly.

Author Bio

Sofia Lee, an enthusiastic editor at Cryptopolitan. She loves to create wonderful write ups of real value that serve the Crypto, Finance, and business audience. Her hobbies are travelling and reading scientific stories.