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CORONAVIRUS IMPACT|EFFECTS ON CRYPTO MARKET

The COVID-19 outbreak has seen increasing disruption in the financial markets as well as on the political front globally. Be it fiat currency or virtual currency, all of it has taken a toll. The article shares the effects of coronavirus on the global economy. It highlights the effect of the pandemic on major crypto currencies – Bitcoin, Etherium and Ripple. Several initiatives are taken by the crypto community which should be discussed about. And the question which every investor is wondering – Is it the right time to buy crypto? 

If you are a trader, crypto enthusiast or an crypto exchange platform owner, this article is your food for thought. The article shares insights on all the above mentioned ideas. Initially, let us understand the impact of coronavirus on global economy.

Coronavirus Impact On Global Economy

Before understanding the effect of coronavirus on crypto market, let us see how it has affected the global economy. 

Downgrades in economic forecasts

The Institute of International Finance (IIF) said that the global uptick in gross domestic product could be as low as 1% this year. Various institutions have downgraded their global forecasts over the last few days. The global economy was expected to grow by 2.4% in 2020, whereas the projected value was of 2.9%.

Globaleconomic

Slowdown in manufacturing activity

The Caixin/Markit Manufacturing Purchasing Manager’s Index showed that China’s factory activity has taken a hit in February. It has come at a record low of 40.3. This kind of a slowdown will affect the countries with close economic tie-ups to China.

manufacturing

Declining Oil Prices

The oil prices have declined due to the slowing down of economic activity. China, which is the origin of the coronavirus outbreak, is the world’s largest crude oil importer. The reduction in demand of the oil has led to the fall in oil prices.

Slump in oil prices

The virus have lowered the confidence and hurt the sentiments of the investors. It has brought down the stock prices in major markets.

sell off in stock markets

The World Health Organization declared the coronavirus a pandemic on 12th March. This resulted into severe drop in the market all over the world. The panic in the traders resulted into liquidation of their assets including the three most lucrative Blockchain tokens – Bitcoin, Ethereum and Ripple. Let us understand the effects of coronavirus on these coins just after the outbreak of this news.

Effect Of Corona Virus On Bitcoin

The price of Bitcoin, also known as the digital gold was hardly disturbed at the initial days of the coronavirus spread in late January. In fact, it reached to a six-month high price of US $10,480 per coin in mid-February. But the upward trajectory of the coin changed after the declaration of coronavirus as pandemic.

Bitcoin witnessed its biggest one-day drop in the last seven years. It fell over 50% to US $3,600 in a single day. Apart from Bitcoin, most widely watched market indices – S&P 500 index and Dow Jones Industrial Average also saw a sharp falloff of approximately 10%. But the drop of Bitcoin was scarier when compared to these indices. As per the analyst, the decline of these indices partially triggered the Bitcoin’s collapse. A high level of correlation was seen in the stock market and crypto market probably due to the fall in the investor appetite for high risk financial instruments. 

The cryptocurrency trader and technical analyst Eric Thies is of the view that geopolitical conflicts and risks have also affected the crypto market. He said 

“Today’s massive dump in both the crypto markets and the traditional markets was very interesting to say the least. While many would say it is solely due to the coronavirus, looking into it further and you will see this does not show the usual signs of a recession. This may be because of the war on oil that many people have not heard about due to the news of the virus.”

Talking about the recent status quo, Bitcoin has made up for some of those losses. It remains at around US $5,155 per coin (18th March – 9 AM GMT). This price is approximately 50% below of its February’s high of US $10,481. 

Effect Of Corona Virus On Etherium

Etherium is the second ranking cryptocurrency according to the market capitalization. Along with Bitcoin, it has also witnessed downfall arising due the panic caused by the coronavirus. It is now down by more than 50% from its $290 high in February. This downfall wiped out the profits made by the upward rally since the start of the year. If comparison is to be made between the losses suffered by Bitcoin and Etherium, the situation is worse for Etherium.

According to the cryptocurrency data research firm Chainalysis Insights – the panic selling of Ether whales have resulted into the devaluation of the currency. Decentralization is the beauty of cryptocurrency. However, major portion of the wealth is concentrated in the hands of small number of agents called “whales”. They have over 30% of all Ether and over 20% of all Bitcoin. 

Santiment – a crypto data analysis company shared that the top 100 Etherium holders (“whales” as per the above discussion) were starting to accumulate more ETH for long term holding. This show the whales have confidence in the currency and leads to appreciation in the value.

Santiment shared this news via twitter on 5th March. However, a week later, Santiment researchers came up with completely opposite news. They concluded that the same Ethereum whales that were supposedly considered to boost the Ether prices started dumping their ETH assets. This led in the massive collapse in the price of Etherium that occurred from 7th March onwards.

Santiment

However, Chainalysis researchers are of the opinion that these whales have no meaningful impact on the price of Ether. But they do increase the volatility in the market with their large sell-offs.

Effect Of Corona Virus On Ripple

Ripple is the third most valuable digital currency in the crypto space. The currency has witnessed sharp decline in its value since late-January. As of now, the price of one ripple token is around US $0.1441. It is quite obvious that the price of third most valuable currency is way lesser than the top two leading the market. 

Ripple is quiet famous for its low entry price, huge market capitalization (nearly US $7 billion) and massive potential. The cherry on the cake is it is governed by one centralized body called Ripple Labs. 

Unfortunately, ripple has also been the victim of the coronavirus driven panic selling resulting into price crunch. Between 7th March and 13th March, the value of the coin declined by 39%. It is the largest one-week drop since the November of 2019. 

The analysts are of the opinion that it is the best time to buy in and stock up on Ripple. However, the markets unpredictable volatility is keeping the traders and investors at a safe distance. 

The numbers and statistics presented above might have made it clear that the corona effect have wiped out the 2020 Gains for Bitcoin, Etherium, Ripple and other crypto coins. These coins have reached at their lowest and can be the good time to go long. 

Let us know shift our attention from crypto market to traditional market. Are there any opportunities for traditional market to embrace cryptocurrency? The next section will highlight this possibility. 

Can Bitcoin Replace Dollar?

The small businesses and households are facing an acute shortage of working capital. Industries are on the verge of bankruptcy. Along with it, the central banks have begun to ease the interest rates. This has created a fear of entrance of fresh currency in the markets. The scenario is similar to what happened during the global financial crisis of 2008. 

After the 2008 economic crisis, the Eurozone central banks adopted the UK recapitalization model. This model was led by the British Prime Minister Gordon Brown. The European central banks funded the bailouts of majority of the distressed banks by providing them with fresh currency. 

God forbid, but if another economic slowdown is on the way, there are high chances that the central banks will once again issue a new currency. This will result into quick devaluation of their respective currencies. Here is where, Bitcoin can come into rescue. 

Bitcoin is scarce and has fixes supply of 21 million. It has predetermined inflation rate which will eliminate the fear of devaluation of the currency. The huge volatility in the foreign exchange market can lead to chaos in many countries. This will affect international trade thereby affecting the payment cycle between the vendors. Under these circumstances, the best move is the replacement of the digital currency with the American dollar. 

As a matter of fact, New York’s Department of Financial Services (NYDFS) has asked the Crypto Firms to Develop Coronavirus Contingency Plans.

New York Regulators For Contingency Plans

Undoubtedly, COVID-19 poses serious threat to businesses as well as the health of the citizens. In order to tackle this situation, New York Regulators showed concern for the crypto markets. 

The regulators were very particular about the potential losses which can be caused by the hackers who can try to exploit the virus outbreak. Firms have been asked to execute robust security measures that could identify “fraudulent trading or withdrawal behavior”.

The plan laid out by the regulated firms has to be submitted to NYDFS within the time span of next 30 days. Following points should be considered while preparing the plan

If you are interested to know more about it, here is the link. 

Within every adversity lies an opportunity. CoronaCoin is the best example for this saying. Let us dig deep and understand what CoronaCoin is all about.

Coronacoin- A Coronavirus Backed Token

CoronaCoin is a coronavirus backed token which is ERC-20 compliant. It is the world’s first and only cryptocurrency backed by the proof of death. Also, it is leveraging the Etherium Blockchain ecosystem. The white paper states that 20% of the tokens have been reserved for donation to the Red Cross to fund the relief efforts.

The currency is structured in an interesting and simple way. There is a set number of tokens in the world which is equal to the population of the world when the minting of tokens was taking place. With the increase in the number of people getting infected or passing away by the virus increases, the tokens are manually burned every 48 hours. One token is burnt for every one infection. 

As the population of the infected people increases, the number of token decreases over time. This shows that it is deflationary and should become expensive as time progresses. The investors will gain profit when the virus continues spreading. Apart from this, the supply of Coronacoin is non-mintable, so no brand new Coronacoins can ever be created.  

Coronacoin has got a catchy ticker symbol – $nCoV. It has helped it to come into limelight rapidly. 

Initially the new Coronacoin token will be distributed by an airdrop. After that, the CoronaToken holders can play games against other players to win more tokens. Indeed a perfect example of the saying – “Within every adversity, lies an opportunity”.

Many Crypto and Blockchain firms jumped in to help the coronavirus victims.

Crypto Exchanges For Coronavirus Victims

Blockchain and cryptocurrency firms took initiatives to help the coronavirus affected victims. Cryptocurrency exchange Binance pledged 10m RMB ($1.5m USD) to assist the victims.

CZBinance

Krypital – Blockchain marketing service firm also launched charity donation to acquire medical supplies for Wuhan coronavirus victims. Apart from this, it has also announced that it will a Blockchain based donation system. This will bring out crystal clear transparency and boost efficiency. 

Wuhan Blockchain

Amidst all the chaos, I am sure the thought might have crossed in your mind – Is it the time to invest in crypto? The market is down and some part of me tells that the price can’t get any lower. If you are of the same thought process, we are on the same boat. Let us find out whether this situation is an opportunity or a pitfall for the crypto investors.

Investment In Cryptocurrency – Opportunity Or Pitfall ?

It is not the first time when we have seen sharp decline in the price of the most popular cryptocurrency – Bitcoin. But it was always followed he high’s higher than the previous one. The present status quo of Bitcoin shows that it is down approximately 50% from its high. So, most of us are wondering if it is the right opportunity to invest in the currency – say Bitcoin or other crypto currencies. Here are some things to take into consideration before putting your money in the crypto market.

Stock Market Turmoil

The coronavirus pandemic has developed a sense of fear amongst the investors. Initiatives like closure of businesses and school, travel bans and quarantines have helped to lessen the spread of the disease. However, this has hurt the market sentiments leading to the sharp losses globally. 

Bitcoin and other crypto currencies are considered to be the “safe haven” assets. The reason behind this being their limited supply, lack of transportation issues, and they can be easily bought and turned into fiat currency irrespective of the geographical boundaries.

As per the past trends, there was no correlation between the performance of the stock market and the crypto market. Unfortunately, this time, the trend does not seem to follow. This is a bit disturbing for the investors because of the fact that the crypto currency’s potential to serve as a hedge against the market turmoil is put to question. Traditional safe-haven financial instruments like gold and silver are also sharing the same space.

Stimulus Measures

Measures are been taken by the central banks around the world to keep the recession as far as possible and reduce the financial burden on the economy. There is a crunch of liquidity in the economy. Central banks are issuing fiat currency to stimulate the economy. But this will deflate the value of the U.S dollar and other fiat currencies since it will increase the amount of money available in the market. 

This is where Bitcoin comes to the rescue. It has a limited supply of approximately 21 million coins. As a result of finite supply, Bitcoin has the inherent potential to maintain its value unlike other currencies.

Boost for Digital Payments

World Health Organization has asked people to stick with contactless payments to reduce the spread of COVID-19. Also, central bank in various countries is quarantining its physical cash for a duration of up to 14 days. The novel coronavirus can survive for some days on the surfaces, the thought that touching the cash could lead to getting affected by the virus may encourage people to adopt digital payment technology.

Future Outlook

The crypto community is awaiting the upcoming Bitcoin halving. It is expected to take place in May 2020. The miners will be rewarded 6.25 BTC. This will definitely drive the crypto currency’s price higher in near future.  Consider all these factors before you plan to invest in crypto market. 

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