The coronavirus has made a massive dent in the global economy. Even as some countries are recovering from the virus, signs of a second wave are already showing. Will bitcoin rally if the second wave of COVID-19 strikes? COVID-19’s continued existence presents unique circumstances that directly influence the behavior of cryptocurrency markets. The question is, will this impact be bigger than we think it is?
In terms of damage done to the economy, COVID-19 has eclipsed some of the worst moments in history, some even drawing parallels between this and the Great Depression, others seeing it as a catastrophic event worse than even the 2007 financial crisis. It is the first major global crisis of this scale to happen in Bitcoin’s 10-year lifespan, and there are very little in terms of past patterns we can use to assume its behavior.
Economic turmoil is expected to drive demand for Cryptocurrencies
Nonetheless, there are simple observations that lend credibility to the thought that Bitcoin might be poised for an upcoming rally because of the coronavirus. In countries devastated by economic circumstances, such as Venezuela, Bitcoin and cryptocurrencies have become not just a safe haven asset, but also become a currency used in daily trade. The effect of the coronavirus on consumer society cannot be understated; the continued closure of workplaces, , and drop in consumption activity will directly lead to a bleeding economy, not to mention the increasing loss of life to the virus.
Even in first world countries and nations expected to be able to deal with the virus, the numbers are staggering. Unemployment is at an all-time high, and businesses are readying up for permanent closure as they cannot find enough funding and financial support to make up for the loss in revenue over the past months. In the United States, the reopening measures have caused the early plateau in mid-June of 25,000 cases daily to instead surge upwards, and the percentage of COVID-19 tests returning positive has increased — indicating that there is an increase in the of the virus.
Bitcoin and Cryptocurrencies are a powerful alternative to traditional banking
With trust in the global financial system slowly declining and the normally well-oiled engines of capitalism brought to a halt, it’s no wonder that people are turning to what looks like the perfect populist alternative to fiat currency. Cryptocurrency offers a great narrative in these trying times: it’s an asset you truly own, which cannot be taken away by governments, which is not subject to dangerous fractional reserve banking, and which is cheaply transactable between parties without the need for a trusted third party. The freedoms promised by such a system are immeasurably valuable if COVID19 evolves into something worse.
Blockchain-based assets, for one thing, are mostly anonymous and difficult to tax. People will inevitably look to protecting their assets from increased tax policies in the coming years — at the end of the day, all this stimulus money has to come out of the taxpayer’s pocket — and this is likely to happen amongst both the wealthy and the nation’s youth, who will likely end up paying the true price for this historically devastating event. Cryptocurrency ownership is already concentrated in the hands of working professionals aged between 25 and 30 years old — these segments of growth in the crypto space are only set to expand, as more people look to ways of getting out of the rat race, either through investment in new asset classes like Bitcoin or even for the promises it has as a growing technology with ever-increasing use cases.
Decentralized finance trailblazing high yield investments in the coming years
Already, the buzzword of 2020’s cryptocurrency is “DeFi”, or decentralized finance. Services such as Staked and BlockFi promise high-yield, low-risk investment products, offering a lender-borrower matching solution much needed in the current business climate. Businesses can arrange to take loans from these platforms at a fraction of what it would cost them to do so from banks, while consumers get to earn from the long-term interests and rebound effect when the economy regains its foothold post-pandemic.
Forced homestay means that Social Media directly drives the growth of new technologies
Meanwhile, social media has also played a massive part in the cryptocurrency’s growth. With people cooped up at home and limited to what they can access digitally, platforms such as TikTok and other social media platforms have stood out as being one of the core ways people interact with each other, leading to increased exposure to cryptocurrencies — a recent event attests to this, where Dogecoin, a veteran cryptocurrency asset whose value has previously been supported through its viral and meme-like nature, gained over 30% in value overnight with the support of TikTok videos asking for people to buy the cryptocurrency.
Investors turning to Bitcoin and cryptocurrencies as a hedging tool
Within the traditional financial markets, increasingly larger numbers of retail investors are looking to blockchain-based assets as a required component of their portfolio. The coronavirus has affected almost all markets — but safe-haven assets such as gold have benefitted from this by becoming the de-facto hedge against the expected poor performance of the economy (Gold is at an all-time-high beating its annual record set in 2009). Bitcoin, seen as a store-of-value albeit with both similar and differentiating characteristics for gold, is high up on most investor’s watchlists as a potential alternative, and it is likely that a rally would lead to incoming interest from these investors once more.
Institutions on the other hand prefer to look at the long term. Investment instruments are being created every day to help these investors attach a part of their strategy to cryptocurrencies, and hedging using leveraged tokens and options are now becoming a major opportunity for them to earn. Fundamentals of Bitcoin have also displayed positive trends in the mid to long term, with events such as the recent Bitcoin Halving putting the inflation levels on par with fiat currencies at only 2% per annum.
Startups in the crypto space, as well as seed capital, have also survived what was referred to as the cryptocurrency bubble of 2017; a substantial amount is still being raised through cryptocurrency and blockchain technology as the core focus, with exchanges like Binance effectively acting as due diligence by placing specific projects into an “IEO” or Initial Exchange Offering directly on their trading platforms.
What does this mean for crypto? How can it achieve greater relevance post-pandemic?
Timing the right moment and trying to predict cryptocurrency’s growth is not important. All the indicators and signs point towards cryptocurrencies taking on a huge role in shaping the future of our planet; from how Smart Contracts are changing the way we do business, to the regulations being loosened on cryptocurrency everywhere, the fact is that crypto is here to stay and become a huge part of our lives. The pandemic will shorten the time between volatile moments in the short 10-year history of Bitcoin and cryptocurrencies — and we think that consumers need to recognize that the future of finance is already here.
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