Bitcoin was invented to rectify the issues pertaining to the financial system, and it is about to prove its worth in the upcoming Virus-induced global recession.
Four months has 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 the highly infectious disease at the time of this writing, no one is certain how the cryptocurrency industry would be embroiled in the ongoing economic disruption. When the World Health Organization (WHO) officially announced a coronavirus pandemic in March, almost all investment vehicles in the world 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 and consequently led to the massive selloff in the traditional stock market.
The correlation between Crypto and Stock Market
Bitcoin (BTC) was created to have certain attributes that would make it far more comparable to traditional commodities, such as gold. Bitcoin price, for most of its existence, has been pitched as an asset that is unrelated from traditional equities and the stock market. The design of the cryptocurrency was based on the idea to make it an asset that does not need to be printed or has to be tied to the value of some corporation. These attributes have helped Bitcoin to gain the position of highly uncorrelated assets that investors seek to add in their investment portfolio, even if it is a small portion. However, all hell seems to be breaking loose in the financial markets in light of the coronavirus pandemic. Unexpectedly, Bitcoin prices seemed to show signs of its 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 the institutional investors who seek to add diversity or reduce their portfolio risk.
In addition to the cryptocurrency market, blockchain startups may have trouble 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, have published an analytic report titled “Inflation is Coming” earlier in March, as they evaluate the ongoing impact of the coronavirus pandemic on the financial markets. The blog article outlines the market crash brought about by the economic turmoil is likely to be as serious as the 2018 Great Recession, the 2000 Dotcom bubble and the 1997 Asian crisis. However, one interesting point to note 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 wider financial ecosystem. For instance, there is growing evidence that the virus could stay on fiat currency notes for a few hours, prompting many people from using these physical monies for transactions. This concern could unexpectedly set a trend to promote digital payments, and 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 yield profitable returns for the investors.
However, for the general public who are not keen to invest, cryptocurrency may be too much of a volatile asset to replace the more stable fiat currencies for everyday purchases. According to the same report by BitMEX, Bitcoin experienced a major sell-off a week before the report was published, plunging to as low as $3,600. Fortunately, there is an ideal form of cryptocurrency that is gaining attention from governments all over the world, 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 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 major drop in their market capitalisation 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 hopefully that the market demand will bring about more interest and understanding towards these digital asset classes.
Remote Work Becomes Commonplace
At 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 businesses were forced to operate and to eventually get used to the remote working culture. Fortunately for many startups especially cryptocurrency projects, both the employees and their customers have actively embraced remote interaction since the inception of the industry. Thus, the gradual shift towards remote work will not negatively affect the cryptocurrency industry, since they are experienced in developing in this format without compromising the quality of work process. More often that 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 are cancelled for fear of the coronavirus pandemic. The cryptocurrency industry was no stranger to large-scale crypto events, as there was a huge demand within the community all over the world to have crypto-related events for networking, learning and other purposes. Prior to the worldwide restriction, there was a particular event known as Ethereum Paris Conference (held on 3rd to 5th March), which was hit with numerous infected COVID-19 cases, where it includes several key opinion leaders (KOLs) of the cryptocurrency community. Since then, all mass gathering events such as the Ethereum Paris Conference were cancelled 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 conference, including speaker panels, fireside chats, company booths, networking areas, and more. The virtual conference even sees a strong lineup consisting of prominent cryptocurrency figures from companies such as Binance, Shapeshift, Neo and Bitcoin.com. If the virtual crypto events prove to be successful, it could elevate the cryptocurrency community status as an innovative industry and propel the cryptocurrency prominence to the mainstream market as a result.
Cryptocurrency to Emerge Stronger in the Face of the Adversity
While the world is still in the midst of battling the coronavirus pandemic, no one knows for certain when the global crisis will end. Economies could recover once there is a vaccine, or that the above mentioned containment measures were effective. Either way, it is inevitable that the global and cryptocurrency market is grappling to overcome the foreseeable months of uncertainty. However, some experts are quite optimistic in their view on the cryptocurrency market in the event of an economic downturn. They believe that the impact on Bitcoin may be limited to price fluctuations, while the crisis may instead accelerate the adoption of cryptocurrency through the eventual acceptance by the traditional financial market and central banks’ push for digital currencies in place of physical fiat monies.
The pandemic occurred when interest rates are historically low due to an ongoing US-China trade war, Middle East and Oil Crisis. In addition to this, people in many countries are growing wary towards their governments. It is likely through such a series of events that could instead become a pivotal tipping point for cryptocurrency adoption, since Bitcoin and other cryptocurrencies do not operate under a single authority (decentralized). Therefore, MyCryptoMixer believes that investors who felt subjugated by the actions of their governments may seek solace by switching into cryptocurrencies which could ensure that their finances are fully within their own control, thereby gaining momentum towards a mass adoption of cryptocurrencies.