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The COVID-19 coronavirus pandemia has dealt a painful blow to the global economy. Quarantines, a sharp decline in consumption, collapses of financial ratings — all this catastrophically affected global markets. Cryptocurrencies did not evade this as well. The Bitcoin price began to decline at the end of February, and on March 12-13 a real collapse took place. For a short period, Bitcoin fell below $4,000, thereby losing more than half of its value since the beginning of the year. Altcoins followed: for example, if Ethereum price was $244 on March 6 — six days later it dropped to $106.
It seems that the existence of a correlation of cryptocurrency rates with stock exchange rates has finally become a confirmed fact. So, the Dow Jones, NASDAQ and S&P 500 fell sharply on March 11-12, which almost coincides with the date of the Bitcoin collapse.
Such events were a surprise for many crypto holders — after all, the idea that Bitcoin is a “safe haven”, new gold, the value of which will only grow in crises, has been a word-of-mouth for a long time. Its supporters pointed to the significant independence of cryptocurrencies from state policy, the lack of a direct connection with the economic condition of a country, anonymity, and other advantages that should have attracted investors fleeing from a panic. However, these hopes obviously failed.
One of the possible reasons for the collapse is the increase in the popularity of cryptocurrencies among traditional investors. After 2016, large players such as the JP Morgan holding became increasingly interested in the new market, investing heavily in cryptocurrencies and related projects. But by the time the pandemic began, this process had not yet gone too far, and cryptocurrency investments were still considered a side investment. The collapse of stock markets, which is considered as a new global crisis, hit traditional methods of income for investors. They hastened to get rid of risky side assets in favor of supporting core business. The departure of the “whales” triggered a chain reaction, which led to a massive depreciation.
“If there is no utility, there is no reason to hold bitcoin. That’s why you hold gold, or horses, or chickens, or cash,” Interlapse Technologies CEO and Coincurve co-founder Wayne CHEN said in an interview and also added:
“In times of crisis, how are you going to buy toilet paper, or napkins, or food with bitcoin? You can’t. Because they don’t accept it. Then what happens to your bitcoin? You have to sell it and nobody wants it.”
Chen suggested that in the event of a global crisis, the role of barter will increase significantly, and the value of electronic means of payment, on the contrary, will drop sharply.
Such statements definitely seem overly apocalyptic, but one should admit that there is some truth in these words. If cryptocurrencies entered the everyday life of a significant part of the world population, then the recent crisis would simply not have occurred, or had milder consequences. We are talking about trust — the only resource that, in addition to computing power and energy spent, provides the value of any cryptocurrency. This is also indicated by Michael NOVOGRATZ, founder of Galaxy Digital:
“[Bitcoin] was always a confidence game. All crypto is. And it appears global confidence in just about anything has evaporated.”
However, Novogratz still remains optimistic, believing that even several months of high volatility of Bitcoin will not prevent it from fully realizing its potential during the crisis. Indeed, after a few days, the Bitcoin exchange rate began to rise again — by March 20 briefly crossed the line of $6,800, followed by a fall of more than a thousand dollars, which, in turn, was corrected by growth again. At the time of writing, the Bitcoin exchange rate is $6,680.
In such unstable conditions, the future of the market remains vague. Optimists believe that the upcoming halving in May and the desire of people to invest in something more reliable than traditional assets will lead to a repeat of the explosive growth of 2016. Such an opinion, for example, is shared by Samson MOW, Chief Strategy Officer at Blockstream.
Pessimists believe that the prospects for cryptocurrencies in the context of the global crisis are very doubtful, and even halving will not boost another price rise this time. In this paradigm, the rate correction observed at the moment is nothing more than a “dead cat jump” — a short-term relief in the midst of an inevitable collapse. Only time will tell — so far, balanced, cautious actions that are not based on panic are the most reasonable ones.
Image courtesy of Insidebitcoins
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