10 Effects COVID-19 had on Cryptocurrencies
The COVID-19 outbreak, which began in Wuhan, China, has rapidly spread all over the world infecting millions of people. Ever since January 2020, the flare-up of the virus has been the main concern of the World Health Organization declaring this outbreak as a global pandemic. As a result, governments worldwide have implemented several restrictions like traveling bands, curfews, and university/school closures.
The ongoing pandemic has undoubtedly affected all of us, be it directly or indirectly. As a result, mirroring individuals, and various financial markets have undergone changes as well.
Unfortunately, the cryptocurrency market was not immune. Just a month after the price of Bitcoin reached USD 10 502, a new high in months. However, on Feb 13, a plunge in cryptocurrency prices suddenly swept the entire market on Mar 13. The benchmark crypto fell dramatically by more than 44% within a few hours, reaching a low of USD 3 791. Then, the price rebounded slightly to about USD 5 000.
Even something that was expected to stay relatively unaffected, such as crypto markets, faced hardship. Meanwhile, the interest of the financial researchers on the impacts of COVID-19 on financial markets is rapidly rising. Overall, a lot of things happened, thus it would be incredibly hard to pinpoint one of them.
Today, we want to present the ten most significant effects COVID-19 has had on the digital currency market.
Less Mining in Asia
It’s no secret that Eastern Asia is the world’s mining hotspot. Experts estimate that over 70% of Bitcoin mining power resides in China and South Korea. As we all know, Bitcoin is among the most sought after cryptocurrencies, even after the 2017 bubble burst. Unsurprisingly, as the leading Bitcoin miners were the first to get hit by the virus, the digital currencies market value fell, and others followed.
Mining Tool Inefficiency
Building on the previous point, the sharp drop in prices also revealed that specific mining equipment was not worth using. As their algorithms failed to adapt to the rapid changes, the tools became useless, leaving both developers and users frustrated. As such, people turned back to mining farms as a safer and more stable method.
For quite some time, traders have considered cryptocurrencies a safe asset to invest in. The new and sudden price fluctuations are causing a lot of people to question that belief. For example, if you look at BTC’s yearly history, you’ll see a sharp drop in value in March. The digital currency lost a large portion of its value in mere days, bottoming out at about USD3000.
Not only regular traders but economic experts have begun doubting the viability of investing in digital currencies. As always, ten analysts will give you ten different opinions, but the pandemic has definitely raised some interesting discussion points. Some claim crypto is too volatile and nonviable as a long-term investment, likening it to a gamble. Others, however, point to more factual data, such as the fact that the S&P 500’s year to date is barely staying in the green, while BTC, for example, shows significant growth.
Raoul Paul, who worked as Goldman Sachs’ Fund Manager in the past, for example, has so much faith in crypto that he moved a quarter of his portfolio to BTC.
A Sudden Fall
In March, bitcoin and many other digital currencies saw a sharp decline, losing upwards to 50% of their value. ETH, for example, fell from a stable price of over USD250 to around USD100, staying there for over a month. That seemed to validate all the doubts already stirring, and many were patting themselves on the back for getting out early. However, the situation has drastically changed since then, bringing a more positive outlook on cryptocurrencies with it.
While our previous points might’ve made you think the age of cryptocurrency is ending, there’s also an opposite side. Many traders hold different opinions and adhere to different methodologies, and as prices fell, many rushed to invest. According to a Cornerstone Advisors study, the number of BTC owners in the US doubled in 2020.
New investors and those that remained patient while the situation seemed grim were handily rewarded. After the sharp decline in March, digital currency markets bounced back, with many soaring over their initial values. It took slightly over a month for BTC to jump from USD3000 to its old price of around USD9000, rewarding patient traders and new buyers. Even further than that, the cryptocurrency registered another significant price jump near the end of July, topping out at over USD11000.
COVID-19: More Publicity for Crypto
With the increased publicity cryptocurrency trading is receiving, many new traders have selected digital currency assets as their main trading method. For example, the Cornerstone Advisors’ study we mentioned before has revealed that currently, 15% of adults in the US own some type of digital currency. Of that 15%, slightly more than half made their initial purchase in 2020. Going even further than that, 11% of non-owners intend to buy some within the year.
While bitcoin is likely to keep its status as the premier cryptocurrency, many have realized that there’s money to be made elsewhere. The increased interest in digital currencies that COVID brought along made many traders diversify, investing in less-known crypto.
Increased Trader Learning Motivation
Perhaps the most significant change COVID has caused is the rise in traders’ desire to learn about crypto. On one side, it is due to many experiencing an increase in free time, and on the other side, it’s because traders have realized the market may not be as predictable as they’ve expected. Not only that but many companies especially online CFD brokerages have registered a noticeable increase in users and trading.
Overall, 2020 has not been merciful and engulfed our lives into pure chaos. But there is still hope. The same goes for the financial markets and crypto.
As the number of reported cases and deaths rises, governments impose additional restrictions and those restrictions are likely to increase the demand for non-traditional assets. That means, that Bitcoin and Blockchain technology is theoretically capable of reducing the unemployment impact that came with the new realities that the pandemic has brought.
Overall, crypto will not only provide benefits in terms of hedge against the pandemic, but it can also be used as payments and money transfer instruments. It is a smart decision for investors to consider including cryptocurrencies in their portfolios depending on the varying phases of COVID-19.
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