Coronavirus Impacts on Bitcoin
Bitcoin’s FCAS is down 11 points since February 21st, as the number of new COVID-19 cases reported keeps increasing. Price is down 17.68% in the same time frame.
What is Bitcoin (BTC)?
Created in 2008, Bitcoin is considered the first cryptocurrency to be mined and traded on a decentralized peer-to-peer network. Rather than relying on a central authority to transact money, a decentralized network of nodes all verify transactions. The process of adding verified transactions to the public ledger and unlocking new bitcoins as rewards is called “mining”, and involves using computer power to solve complex mathematical puzzles, or hash functions.
The Bitcoin blockchain suffers from important design limitations which make mining very expensive; slow down transaction throughput; and cause high volatility in price. Since the release of bitcoin, over 6,000 altcoins (alternative variants of bitcoin, or other cryptocurrencies) have been created so as to improve the platform’s scalability, security and speed.
Chinese Centralization Hurts Bitcoin
Bitcoin’s FCAS has dropped 11-points (-1.23%) since mid-February, driven by an 18-point (-2.13%) decrease in Developer Behavior and 6-point (-0.62%) decline in User Activity. Market Maturity has also dropped 14-points (-1.68%) in the same timeframe.
This general decline in Bitcoin’s fundamental data comes at a time when the world’s second-largest economy, China — also a large participant of Bitcoin mining — is deeply caught up in one of the worst pandemics in recent memory. Major mining equipment makers had to delay production due to government imposed quarantines, and mining farms were shut down. This has no doubt affected the level of Developer Behavior, as Chinese mining pools control most of the Bitcoin network due to the country’s extremely cheap electricity.
Further, the slight drop in User Activity can be attributed to the fact that Bitcoin remains a highly speculative cryptocurrency, where current investors are easily spooked by an expected drop in price. The fact that the search term “bitcoin coronavirus” has recently overtaken “bitcoin halving” on Google Trends is telling of the volatility many people are expecting to see with the spread of the contamination.
Our Hot Take
While current investors might be turning away from Bitcoin, it seems likely that new buyers will start using the token as a safe haven. Right now in China people are being quarantined based on surveillance of their spending, and punished for spreading news of the contamination. In this environment, and considering Bitcoin’s widespread use in the country, we can expect the token to gain traction as citizens aim to resist government control.
The Chinese central bank has also ramped up measures to sanitize old money, and plans to inject some 1.2 trillion yuan ($173.8 billion) to calm people and markets as coronavirus fears worsen. The inflationary pressure this will cause is likely to drive demand for crypto assets globally, as other nations take similar measures to boost their economy. It will be interesting to see the level of demand Bitcoin will gain in comparison to other tokens.