Coronavirus Reveals Cryptocurrencies Are Crisis-Resistant
May 04, 2020
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It was said many times before that in the days of disasters cryptocurrencies will be considered as a financial safe haven by many people. For years this claim was barely possible to confirm or disapprove but this time around it seems that we will see if it is true. Coronavirus hit the news right after disturbing news about the geopolitical tensions in the Middle East and the oil price crash. Let's analyze the cryptocurrency market reaction to these events.
Market Wobbles
The market has lost a serious portion of its value on March 8. It has happened in the wake of the news about the oil price nosedive. $26 billion of overall crypto market capitalization vanished in one day. It wasn't looking like cryptocurrency is a safe haven. Rather it looked like the cryptocurrency market is an immanent part of the traditional market and is not independent. But let's not make conclusions in a hurry!
The news about the oil prices was soon followed by international anxiety over coronavirus. On March 12 and March 13, the crypto market saw another serious decline due to massive sell-offs of coins. That was one of the worst periods in the overall history of the crypto market. In several days the market has shrunk by half.
Nevertheless, 6 days later it quickly began to grow up. As of March 20, it was reported that the overall cryptocurrency market has gained $23.8 billion in capitalization in the course of 24 hours. That day the biggest cryptocurrencies have improved their exchange rates notably. The Bitcoin price gained 16% reaching the mark of roughly $6,243. Ethereum had even a better performance gaining 17% in price. The price now is slightly below $140 per 1 ETH. The XRP price has grown by 12%.
What Do These Figures Mean?
So why did the cryptocurrency market experience such a decline on March 12 and 13? We think we know the answer. By March 12 there were over 128 thousand people infected with COVID-19 around the world and the number of deaths surpassed 4,700. The numbers were growing quickly. It provoked panic on the stock market among many other things. Some of the traditional currencies showcased the lowest value levels in 21st-century history. It would be not fair to say that this period was a nightmare for cryptocurrencies solely.
In his comment given to The Independent, the cryptocurrency expert Glen Goodman said that the Bitcoin price crash was a reaction of the stock market wreck. People needed cash to pay off their debts to the brokers. So they had to sell everything they could including crypto assets.
Bitcoin was born in the wake of the 2008 financial world crisis. Until now there were no such impactful negative events in the world economy as the situation happening these days when the coronavirus pandemic has infected not only the systems of individuals but national and world economic systems as well. Will we see Bitcoin in action this time? It seems so.
The Future of Cryptocurrencies
By some reports, the European Central Bank and the Reserve Bank of Australia are ready to start deploying such methods of artificial maintenance of the economy as money printing. It may draw investors to gold and... Bitcoin instead of relying on banks that can keep on printing money decreasing the value of the existing accounts of their clients. We know that Bitcoin and most of the rest cryptocurrencies are deflationary. Cryptocurrencies were reproached for volatility but this time we see that traditional currencies cannot be a safe haven. The total supply of national currencies is not limited and can't be predicted. It means that each unit of your account will be stripped of its value as the banks will keep on printing more money and distribute this value among the other units.
The cryptocurrency price surge that we witness right now confirms the popular (in crypto community) stance that the financial crisis is a factor that drives more people into cryptocurrencies. However, we don't know how much time it will take to defeat coronavirus and recover the economy. In the future, the need for cash may decrease the value of cryptocurrencies. If investors are not going to make sell-offs again, the crypto market may get stronger. Moreover, the crisis may incentivize business owners to start accepting payments in digital coins. New use cases can cement the value of cryptocurrencies.
Wash your hands, stay hydrated, and keep your eyes on crypto charts! Will cryptocurrencies become a safe haven in times of crisis? There are all chances for that. Take care!
The opinions and assessments expressed in the text are the views of the author of the article and may not represent the position of Cryptogeek. Do not forget that investing in cryptocurrencies and trading on the exchange is associated with risk. Before making decisions, be sure to do your own research on the market and the products you are interested in.
Journalist, cryptocurrency enthusiast. I've being investing in cryptocurrencies since 2016. I hold a Bachelor's degree in civil engineering.
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