How Will The Coronavirus Pandemic Affect Bitcoin?
As warning signs of a global recession have been increasing over the last few months, it looks like the current coronavirus epidemic could be the tipping point for overextended legacy markets. Growing fears over the virus have already decimated stocks around the world. For those of us invested in cryptocurrency, questions are starting to arise about how our decentralized digital assets will perform in these turbulent times. How exactly will Bitcoin respond in the face of such global uncertainty and turmoil? Will it live up to its perceived value as a global hedge, or will investors flee from this already volatile asset?
Bitcoin: Hedge or High Risk?
Bitcoin was proposed in part as a response to the financial meltdown of 2008. Its now famous founder known only under the pseudonym of Satoshi Nakamoto, cited a need for a decentralized currency outside of the control of banks and governments. Since Bitcoin was not in circulation until after the 2008 crash, it is hard to know how Bitcoin and cryptocurrency markets will react the moment the next one comes around. Speculation has run rampant in both directions, with some arguing that Bitcoin will serve as a hedge similar to gold and actually thrive in moments of collapse. Conversely, the volatility of Bitcoin, albeit decreasing, may exclude it from the list of possible hedges in times of economic turmoil. No one really knows what will happen, but there are two scenarios to consider.
The Bearish Case
After US markets tanked at record levels last week, Bitcoin appeared to follow suit as it also dropped to around 8600$USD from 10 000$USD — a 14% decline. This prompted many analysts to claim that we already have our answer. Their argument is that Bitcoin proved too volatile and investors sold when financial uncertainty hit. Other prominent cryptocurrency critics such as Peter Schiff echoed the same sentiment. When a recession hits, people tend to be fear-driven and gravitate away from risky assets. Investors have even already sold off a lot of equities and begun hedging with gold. There is also the fact that a lot of retail investors may need to sell their Bitcoin to buy extra food, medical supplies, and cover other monthly expenses when quarantines prevent them from working and making money.
The Bullish Case
Although Bitcoin has not gone through a global financial crisis, its performance in smaller scale economical crises may give us hints about how it will react when the next big meltdown really comes. During the Cyprus financial crisis of 2013, Bitcoin surged a whopping 87% as Cypriot citizens, disillusioned with their central banks and governments, bought up droves of the decentralized, permission-less currency. The same thing seems to have happened when the Turkish Lira plunged in value back in 2018. During that time, cryptocurrency trading volume from Turkey across all cryptocurrency exchanges surged. Bitcoin also served as a viable alternative currency to Venezuelan citizens in 2018. Despite Bitcoin’s free fall from $20k to $3k in the 2018 bear market, it was still a superior store of value to the hyper-inflated Venezuelan Bolivar at the time. In spite of these various case studies, there are of course many variables that would be different should the same financial turbulence occur on a global scale. Still, these limited existing data points suggest that Bitcoin and cryptocurrency will be bullish if and when the recession hits.
Conclusion
At the end of the day, no one can say with 100% certainty what will happen if coronavirus continues to spread and the world economy tips into a long overdue recession. However, one thing is for sure: Satoshi Nakamoto created Bitcoin in part as a response to the irresponsible and reckless central bank policies that caused the last great recession. Since then, many investors and cryptocurrency enthusiasts have joined the movement with the same vision in mind. Beyond the “moon boys” who dreamily await the 100x gains in profit, many people are still in it for underlying technology and everything it represents. The ability to be decentralized, free, and controlled by the people is the ethos of cryptocurrency. Some could even say that it is Bitcoin’s destiny to serve as a global hedge. It looks like we might see this destiny unfold sooner rather than later.
