We are facing challenging times globally, that affect all of us economically and for some even our existence. The Coronavirus is a global pandemic that has brought the world economy to a grinding halt. While we do not know how bad it may turn out to be, a crisis can alway be an opportunity. It can help us reshape and implement digital strategies and create new opportunities that accelerate the application of new technologies. How will Bitcoin and cryptocurrencies fare during this chaos?
Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and a weekly columnist at DailyFintech.com.
Coronavirus has infected everything from stocks to Bitcoin. Despite the fact that cryptocurrencies work against the grain of the traditional financial system, because they operate without the need for banks, a couple of days ago cryptocurrencies were not immune to the downturns of traditional financial markets.
The price of Bitcoin witnessed a bloodbath on Friday. Bitcoin’s price dropped 52% in a single day, compared to a 6% drop for gold and a 9.5% loss for S&P’s.
Not only was Bitcoin was hit hard during the week, every asset class experienced its worst since 2008. For the second time in its history, the New York Stock Exchange stopped trading when a market drop triggered its internal circuit breaker, on March 13. This fail-sale system was put in place after the Black Monday stock crash of 1987.
This week Bitcoin’s price suffered and it was one of its most devastating crashes.
While market movements were primarily connected to developments within the cryptocurrency industry, such as favorable regulation being introduced, or rumors that a country is developing its own cryptocurrency, many considered tokens as a safe haven from the uncertainties of the broader financial markets. But the idea that Bitcoin’s price is unaffected by events like the political crisis between Iran and the US or the spread of COVID-19 was displaced this week.
Everyone was selling everything, just like in the financial crisis of 2008–2009. People were trying to minimize their risk across all asset classes. But one person that didn’t seem phased by the sudden drop in crypto prices:
This is the first time in a while I’ve felt like buying bitcoin. That drop was too much panic and too little reason.
— Edward Snowden (@Snowden) March 13, 2020
Markets tend to be very emotional and susceptible to herd behavior. Cryptocurrency markets are no exception here. Crypto lovers and believers are likely to buy the dip, while most others will panic and dump their crypto assets.
When panic hits, most people gravitate away from risky assets and revert to survival mode. It’s only normal that people are selling off their Bitcoin to get liquidity, in case the coronavirus pandemic gets even worse. Cash is the only way to buy food and medicine. We can’t really use Bitcoin to pay for basic things, so its possible that retail investors may need to sell their BTC to make sure they have the money to buy extra food, medical supplies and cover other monthly expenses, when prolonged quarantines prevent them from working and making money.
But, cryptocurrencies may have not lost their safe-haven status.
It’s been reported that the reason behind the Bitcoin’s prize drop is a Ponzi scheme by PlusToken. In recent years, PlusToken has scammed cryptocurrency investors in China and Korea for roughly $2 billion, in Bitcoin and other cryptocurrencies. Sales of Bitcoin by PlusToken may have been a contributing factor, in starting the price avalanche, with the con artists behind the Ponzi scheme moving their crypto holdings in ways that would make it more difficult to track sales.
A crisis is always an opportunity. The coronavirus crisis provides the opportunity to change everything and do things we couldn’t do before.
From an economic standpoint, the coronavirus pandemic could be the perfect opportunity for global economies to wipe the slate clean and of past sins like unsustainable inflation and debt creation. The global economy is running out of options when it come to dealing with recession. Lowering interest rates to encourage borrowing and spending, only creates artificial credit bubbles.
The financial world as we know it, is now changing. Central banks will digitize money supply. Several CBDCs (Central Bank Digital Currencies) are being researched and developed in many countries globally. If the coronavirus didn’t hit Wuhan, China’s digital Yuan was to going to be released in the first quarter of this year. Digital surveillance and unmitigated printing powers, could allow financial policymakers around the globe to evade such things as negative interest rates.
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