The Impact of COVID-19 on the Cryptocurrency Market: (Part 2)
On March 12, 2020, Bitcoin prices dropped by 38% over a 24 hour period, making it the third-biggest crash in the cryptocurrency’s decade-long lifetime. Simultaneously, the S&P 500 index suffered its greatest single-day percentage loss since the 1987 stock market crash. While the crypto and global equity markets have historically remained uncorrelated, 2020’s Black Thursday event bucked that trend in a major way. So how did crypto investors and the rest of the industry respond to this drop?
In this article, we answer that question and try to understand what the future of the cryptocurrency market could look like. This is the second article in our three-part series on the effects of COVID-19 on the digital currency asset class. Click here to read the first installment, where we spoke about crypto use and adoption in light of the pandemic.
Cryptocurrency: A Safe Haven or Crisis Currency
For many, the Black Thursday event seemed to be proof that Bitcoin is not stable enough to be considered a safe haven asset, a distinction that has been held by Gold for several decades at this point.
However, a lot has changed since March 12. The crypto market bounced back almost immediately after, with Bitcoin prices stabilizing around $9,000 in late May. Another proverbial feather in the market’s hat comes from a study conducted by The Tokenist, which states that consumer trust in the cryptocurrency asset class has jumped by at least 29% over the past three years. Meanwhile, faith in large financial institutions such as banks is on the decline, accelerated by the economic repercussions of COVID-19.
The study’s findings come across as no surprise to anyone following the crypto market closely. Bitcoin and other crypto assets still offer protection from various geopolitical issues in ways that Gold cannot. When the COVID-19 pandemic disrupted international supply chains, for instance, many trading platforms struggled to physically deliver Gold bullions to futures investors. This disruption caused Gold futures and spot prices to diverge significantly for the first time in recent years. Additionally, those investing in paper Gold at the start of the pandemic could face liquidity issues in the event of a full-blown global crisis.
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In spite of its volatility issues, Bitcoin can be owned and transferred by a single individual, without the potential hassles of authorities such as banks and trading platforms. This means that it can be used as a transfer of wealth just as easily as a store of value. Indeed, in many countries with unstable economies such as Zimbabwe and Venezuela, cryptocurrencies have proven to be a viable, if not de facto, alternative to fiat.
Predictions for the Future of Crypto
In spite of a somewhat volatile first quarter, many experts believe that the cryptocurrency industry has never been stronger, especially in light of increasing demand. According to Changpeng Zhao, CEO of digital currency exchange, Binance, “Fundamentally, bitcoin or cryptocurrencies have not changed. They still work. They are still in limited supply, no one can arbitrarily print more of it.”
Other notable Bitcoin advocates, including the likes of Andreas Antonopoulos, correctly predicted a crypto market crash similar to the one observed on Black Thursday long before the market showed even the remotest of warning signs.
Speaking on his ‘What Bitcoin Did’ podcast in January, Antonopoulos said that the crypto market would experience downward selling pressure as institutional investors and corporations rushed to liquidate their portfolios. Furthermore, with sources of disposable income drying up for many of these corporate entities, they would be hesitant to double down on their existing digital currency investments anytime soon.
The Impact of Community Sentiment
Indeed, Bitcoin’s recent recovery to $9,000 between March and May, 2020 can largely be attributed to retail and smaller investors. Data from Glassnode shows that the number of wallets holding more than 10,000 BTC has dropped over the past few weeks. To understand whether this change is an inflection point in the industry or not, Alluva is collecting unique predictive insights from cryptocurrency analysts around the world. By analyzing community sentiment and trader outlook through its proprietary algorithm, Alluva is able to offer an unprecedented view into the future of the crypto market. Investors, both retail and institutional, rely on Alluva’s insights to make more informed decisions.
To learn more about Alluva’s price prediction platform, visit the website here. To keep up with the latest news on Alluva and read more about the latest developments in the crypto market, subscribe to our Medium profile or blog. Lastly, feel free to get in touch with the Alluva team on Twitter and Telegram.
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