How coronavirus affected cryptocurrencies
There is no doubt that the advent of the coronavirus and the outbreak of a mass pandemic have affected absolutely all spheres of human activity now, more than a year after the first case of infection was detected. But what about cryptocurrency, famous for its decentralization and independence? Let us try to figure it out.
WHAT HAPPENS TO BITCOIN IN midst of PANDEMIC?
As in previous materials, we will consider the situation against the background of bitcoin, the most popular and iconic of all the cryptocurrencies. To understand how the coronavirus has affected it, just look at one of the official data charts. For example, on the statistics of one of the leading Bitcoin sites — blockchain.com:
It clearly shows that the average market price of bitcoin has grown from 6 663 to 57 757 US dollars since the release of the first news about the increase in the incidence rate in China. That is, almost by 10 times.
Also, just for the sake of statistics, let’s take a look at the second most popular cryptocurrency in terms of market capitalization — Ethereum (ETH). Here are the graphs of changes in its value, based on data from tradingview.com:
The situation is similar to that with Bitcoin. So, it can be argued that the pandemic has affected not only this currency in particular but also the cryptocurrency market as a whole.
WHY CORONAVIRUS affected CRYPTO-CURRENCIES SO BADLY?
The answer to this question is based on one of the 5 main factors that impact cryptocurrency prices. Of course, we are talking about the impact of the economic situation. Speaking in plain terms, the worse the situation with the economy and conventional money, the more stable and better cryptocurrencies feel.
Before the global pandemic, this factor was well traced in some markets, for example, in African countries. In particular, at the very end of 2017, Bitcoin prices on the largest African exchange Golix.com hovered 40% above the world average rate.
There was no such significant mark-up in the world’s other countries, but, in general, the basic rule was always confirmed, since the population tended to look for an alternative, more stable means for investment against mounting economic problems. And cryptocurrencies were almost an ideal option in this regard, since neither fluctuations in a country’s main currency rate, nor its government could directly influence them. True, in the case of Africa, not only the unfavorable economic situation played a role, but also the general difficulty of mining, but this is only an additional aspect that makes the example even more striking.
With the spread of the pandemic throughout the world and the onset of the global crisis, this specific feature of cryptocurrency has become even more pronounced.
Quite unexpectedly, the measures taken by a number of governments to combat the after-effects of the pandemic provided another important impetus for the growth of bitcoin. In particular, in late 2020, the US authorities printed an additional 2 trillion dollars or so, a record high injection into the dollar economy. The decision, which seemed to benefit the population, on the face of it, had several repercussions.
- The release of extra dollars, not backed by an increase in gold reserves, due to the difficulties caused by the lockdown, led to a rapid rise in inflation.
- As the former stability of the dollar was shaken, part of the issued money was instantly invested in more stable cryptocurrencies, in particular, bitcoin. Its growth was already clearly noticeable at the time, while the new dollar injections have only spurred it.
WHAT WILL HAPPEN NEXT
Undoubtedly, the cryptocurrency will extend its growth for some time. That said, the further development of events is extremely difficult to predict. In general, many financial experts and economists emphasize that certain changes in the situation may occur with the massive introduction of the vaccine worldwide. Otherwise, their opinions are divided.
Some believe that the pandemic will finally trigger off the integration of cryptocurrency into the “traditional” economy, since large companies like PayPal have already taken impressive steps towards Bitcoin, making it easier for users to interact with it. Others argue that cryptocurrencies are just another “soap bubble” that will inevitably burst in the wake of such rapid growth. However, only time will show which of the opinions will prove to be correct in the long run.