Impact of Coronavirus on the Crypto Markets
The coronavirus COVID-19 has been a global news topic for the past few months. The disease, which was first reported in the Wuhan region of China on 31st December 2019, has spread quickly across the globe, prompting the World Health Organization to declare the disease a pandemic.
As is expected, the global pandemic has had adverse effects on various industries around the world. The crypto sphere has, unfortunately, not been spared. Seeing as the occurrence is the first of its kind since the introduction of blockchain technology and cryptocurrencies, the outbreak of COVID-19 proved to the world that cryptos are not immune to the factors that influence the traditional stock market.
It is no surprise that the pandemic caused a plunge in the global stock markets, and experts worry that the continual spread of the disease has produced long lasting effects on the global economy.
Similarly, the virus has had adverse effects on the crypto markets globally. In this guide, we will take a look at the impact of the illness so far, and what could happen if the world does not contain the virus.
Cryptocurrencies as Safe Havens
For the longest time ever, crypto enthusiasts argued that Bitcoin and other cryptocurrencies were safe havens and would not be affected by factors that would cause adverse markets to the traditional financial markets.
According to crypto advocates, the strict rules governing the supply of cryptocurrencies protect tokens from the manipulation of central banks and governments to their fiat currencies. In their defence, cryptos have performed rather pleasingly in previous events that caused a strain in financial markets.
The recent developments in the crypto markets, however, have showcased a different scenario. Now, experts are terming the outbreak of COVID-19 a black swan event along with the 2007-2008 recession and 9/11 US terrorist attacks.
Granted, cryptocurrencies have never been around for a pandemic, and no one knew how exactly they would behave. However, key players in the crypto sphere seemed astonished by the plunging prices in exchanges following the gradual spread of the disease in the world.
The generally accepted explanation is that cryptocurrencies long lost their safe-haven status and are once more risky assets. However, this explanation doesn’t seem to sit right with the reason for most investors choosing crypto assets.
Another possible explanation, according to crypto market watchers, is that the Ponzi Scheme, Plus Token, contributed significantly to the drop in prices. The scheme has been operating in China and Korea over the last few years and has fraudulently acquired $2 billion worth of Bitcoin. Whatever the explanation, it is clear that Bitcoin has failed the COVID-19 test.
How has COVID-19 Affected the Crypto Markets?
In the wake of the crash of major global markets, it is no surprise that many investors showed increasing interest in safe assets. Gold prices, for example, have been on the rise, registering a 10% increase in December of last year.
We would expect cryptocurrency markets to behave similarly, seeing as many consider the tokens digital gold. And for a while, Bitcoin performed as was expected.
The start of the year brought some excellent news to crypto markets. Investors were swooping in rapidly, following Bitcoin’s substantial gains in 2019. The digital coin registered an 85% increase in price from $400 at the start of the year to $7200 at the end, with an all-time high of $12,500 that year.
By 10th February, Bitcoin had hit the $10,000 mark, and crypto investors were hopeful that the prices would continue soaring even amidst the COVID-19 outbreak.
However, this was not to be the case. Nearly a month later, Bitcoin prices, as well as those of other altcoins plunged, leading to a crush of the crypto markets. The markets saw a decline in the total market cap within 48 hours starting from 7th March to 9th March this year. This plunge followed WHO’s declaration of COVID-19 as a global pandemic.
During this period, crypto markets registered a decline of about 14.4% to $225 billion on 9th March from $263 billion on 7th March at the same time. Bitcoin registered a 13.8% decline in the same period, bringing its price to $7840. At the time of writing, Bitcoin’s price was $5153, registering a 2.58% decline in the last 24 hours.
Bitcoin was not the only affected cryptocurrency. Ethereum, XRP, and BitcoinCash were among the hardest hit altcoins with declines of 28.3%, 23.2% and 21.1% respectively. ETH sells at $112.79 at the time of writing.
The plunging of the crypto markets have proved one thing- cryptocurrencies are not immune to market factors. However, enthusiasts remain hopeful that the prices will continue to rise with time as the world contains the spread of the virus and with Bitcoin halving approaching in May.
Bitcoin Mining is Now Easier
An unexpected effect of the coronavirus is that it is now much easier to mine Bitcoin. China, where the virus has its origins, holds about 65% of Bitcoin miners. In a bid to curb the spread of the virus in the country, the government has long since shut down several crypto miners.
This move presented the cryptosphere with a double-edged sword. For starters, the closure of these miners allowed reducing the centralization of Bitcoin mining. However, the rapid decline in the number of miners could impact the blockchain network negatively.
Earlier this month, Reuters reported that crypto developers had introduced a new altcoin, CoronaCoin. The new crypto has its supply dependent on the world population and would bur its tokens every 48 hours, depending on the latest reported cases and deaths.
The morbid coin has attracted investors who believe a significant amount will be burned as more cases are reported globally. According to the coin’s website, 20% of the supply will go to RedCross in the form of monthly donations.
Sunny Kemp, who identified as one of the developers dismissed claims that the coin was amoral. According to him, the digital currency was no different from the pandemic bonds issued by the WHO.
The impact of the coronavirus has been felt in global financial markets, as well as crypto markets. As the virus continues to spread, no one is sure what direction cryptocurrencies will take. Many crypto enthusiasts believed the tokens to be safe havens, but recent events have proved them wrong.
We can only wait and watch the crypto markets to see what will happen. However, it is evident that if the virus is not contained, there are likely to be adverse effects on cryptocurrencies and stock markets as well.