How coronavirus affects the cryptocurrency industry
World indices have fallen over the past two weeks from news about the coronavirus. Now economists are waiting for a recession in the global economy by the middle of the year, and statistics from China turned out to be the worst in 30 years. How can all this affect the cryptocurrency market in the future?
Currently, the situation in the stock market leaves much to be desired: the Block analyst Ryan Todd compared the dynamics of the S&P 500 index now and against the background of the past global crisis.
According to him, the current drop in the stock market is much sharper — in 3 weeks, the “barometer of the American economy” dipped 25%. In 2008, it took almost 250 days to achieve the same depth decline.
However, governments and central banks around the world are not giving up: the US Federal Reserve for the second time in less than a month urgently cut the rate and launched a quantitative easing program by $ 700 billion. Even without taking these measures into account, the number of incentives promised to the economy in different countries almost reached $ 1 trillion, or 1% of global GDP.
Serious turmoil in the stock market affects cryptocurrency.
The past week began relatively calmly — for several days, the price was in the flat zone amid extremely low trading volume. However, the situation changed dramatically on March 12 — the price hit the level of $ 7000, and then $ 6000, is much lower than the 200-day moving average.
The fall was sudden, amid an impressive surge in trading volumes, indicating extreme seller pressure. In a matter of hours, total capitalization fell by about a quarter to $ 150 billion.
Over $ 2.5 billion of positions were liquidated on the OKEX cryptocurrency exchange, and almost $ 1.5 billion margin positions were liquidated on the BitMEX exchange, which is a record. “That was panic selling from people who bought on margin” the Galaxy Digital founder, billionaire Mike Novograts said.
The cryptocurrency market collapsed against the backdrop of a continued fall in world indices and many commodities. It is especially worth noting that even the price of a protective asset — gold, dipped by almost 10 percent.
On Friday, March 13, the situation worsened even more — bitcoin at some point dropped to the level of $ 3,782 (according to the Binance exchange), having lost more than 50% of the cost in just a day. The fall was the third deepest in the history of digital gold.
As you can see, the price of bitcoin and other cryptocurrencies from the top 20 dipped by 40% or more.
Similar market events have led to extremely negative sentiment in the community. Amid the global spread of coronavirus, the question of the further impact of the cryptocurrency industry arose.
With this question, the Cointelegraph publication turned to two experts: cryptanalyst Naim Aslam and a well-known crypto investor, as well as Tokenmetrics CEO Ian Balina.
Naim Aslam was skeptical of the suggestion that Bitcoin could become a “safe haven.” He emphasized that the main cryptocurrency is a salvation from the monetary policy of Central banks. However, interest in it in the market also depends on the general mood due to the coronavirus epidemic.
“I think when we talk about Bitcoin as a safe haven asset, we’re really talking about in relation to central banks and their monetary policies. Right now, we don’t have that fear in the market right now. The fear in the market is about the influence of coronavirus. When we have something going wrong with the monetary policy, then, yes, we could see the momentum coming in because obviously Bitcoin the entire fundamentals base against the traditional monetary policy that the central banks are running.”
Ian Balina rejected the suggestion that crypto and coronavirus are correlated, stating:
“We personally don’t invest or trade on specific events. The coronavirus has not shown to be correlated analysis with Bitcoin or crypto in general. So because Bitcoin is a global asset class with numerous global events happening in tandem and it’s very hard to pinpoint one particular event as being the catalyst, I think perhaps indirectly the equities markets having a huge selloff where over 1.7 trillion dollars was lost in a few days and I think crypto could be really just playing off of that.”
The coronavirus epidemic continues: many countries have already closed borders, limited transport connections, and public events. Such actions can encourage people to buy up “protective assets” to save money.
Protective assets proved their low volatility during the Second World War, the oil crisis of the 1970s, the two Iraq Wars and the war in Yugoslavia, the crises of 1987, 1998, and 2008–2009. Bitcoin, on the other hand, was created directly during the last serious financial crisis, and therefore it’s testing for belonging to the class of protective assets by the current situation with coronavirus, and the fall of stock markets has yet to be.
