What’s COVID-19 and How Affects Bitcoin?
In Q1 2020, the world faced with an unexpected enemy – the Coronavirus pandemic. Coronavirus is a family of various viruses that cause diseases ranging from a mild cold to more serious illnesses like Middle Eastern Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). At the beginning of 2020 in China was found a new strain that has not been previously identified in humans. Unfortunately, despite measures taken by China, the virus has spread worldwide, and in less than two months, the infected have exceeded 1 million people in more than 180 countries. The death toll in early April reached 70,000. We will try to answer why COVID-19, Recession, and Bitcoin could be related.
How COVID-19 Affects Economy
The central banks and the governments around the globe have imposed extraordinary measures to tackle the pandemic. Some were on time and in place, while others were delayed, and the results were negative for their countries. That has led to shutdowns in many industries, broken supply chains, detained people in their homes under quarantine, and, as a result, record global unemployment and paralyzed the global economy. Undoubtedly, the effects of the Coronavirus will grow into a worldwide recession, and financial markets are the first to feel fear of a looming economic tsunami. Both the traditional markets as well as the crypto market sank after the outbreak began showing up its deadly side. Many currencies fell against the US dollar; oil hit a 35-year low with a price under $ 20. And gold, as a safe-haven and a hedge against inflation, has managed to rise significantly.
Then, regardless of all the above, you can be sure of one thing. That is, no matter where you are in the world, you will experience the effect of the COVID-19 pandemic. Keep in mind that in all cases, the coming monetary tsunami will trigger a massive wave of monetary inflation and fiat money debasement. In this scenario, equities, gold, and Bitcoin will all play a key role in protecting your wealth in various ways.
Impact of Coronavirus on Bitcoin
Most people think that after the virus outbreak, cash flows would shift to Bitcoin that is considered to be the safe-haven asset at the time of crisis. But Bitcoin collapsed by 34% after the outbreak of the virus (and most of the altcoins suffered even more), thus refuting people’s expectations. Because the value of the digital coin is driven by demand and at that time, institutional investors have been selling everything to go to cash before repositioning when it becomes clearer what will happen with this crisis.
The pandemic will also limit the manufacturing of new machinery, thereby limiting the ability of the mining farms to replace the old equipment in order to meet new algorithm challenges. That can also delay the Bitcoin halving a bit further due to reduced hash power.
There is no doubt that the Bitcoin and crypto community, in general, were far earlier in recognizing the potential importance of the COVID-19 crisis than most professional communities. Bitcoin is obviously a much more volatile asset than gold. In our opinion, it’s a great way to store value but not for every occasion. Bitcoin is an alternative hedge against monetary debasement and offers protection against confiscation. It is portable and can be hidden from authorities, institutions, and agencies.
Possible Scenarios for Bitcoin After COVID-19
According to data aggregator, Buy Bitcoin Worldwide, the 30-day volatility on BTC/USD averaged 10.86% at the end of March. That is the highest level since December 2013, when it reached 12.56%. And Q2 has historically been the best performing quarter of the cryptocurrency. So, the expectations are that the volatility should continue to increase in Q2. Now, day after day, it becomes obvious that the only possible reaction by the governments and central banks will be to throw huge amounts of digitally printed money to the markets. This is good enough reason to be bullish on Bitcoin.
who knows the COVID-19 global crisis can also accelerate innovation, pressuring crypto to become a complete ecosystem, not just money.
In fact, crypto companies have played their role in providing help countries, hospitals, and people suffering from COVID-19. Coronavirus relief campaign, a Red Cross Bitcoin fundraiser, and an investment fund are just some of the initiatives involving cryptocurrencies. And logically, we saw bullish momentum in the Bitcoin price in early April. However, will this continue? If one day in the future, Bitcoin and other cryptos are accepted as a mass medium of exchange, then some resilience in Bitcoin’s stability can be expected.
The fact that the macro environment for Bitcoin is positive does not mean that we will not see a decrease again to $4000 area if the tensions on financial markets continue. In one particularly dark scenario, the global economy will plunge into a severe recession, and countries will turn to authoritarianism to survive. This will harm the price mainly because, until now, Bitcoin and other cryptos are not widely available to the public. They are also not easily exchangeable for necessities such as food and clothing.
Will COVID-19 enhance the use of cryptocurrencies?
We believe now is the time for Bitcoin to shine. As the public does not want to run the risk of contracting the virus, more and more people are switching to card payments, e-transfers, and cryptocurrency payments. And this is the main reason why experts now say that the trend might turn to the bullish side. There are thousands of cryptocurrencies today, and they all have different uses that can be helpful during a pandemic. The second reason is that cryptocurrencies can provide solutions to the problems associated with the traditional financial system.
As mentioned above, governments have so far responded with an unlimited bailout plan for printing money. But it will take years before this money „penetrates“ the global economy. Central banks will flood the markets with a ton of currency, that is going to be worthless. The accelerations in broad money growth will cause significant increases in inflation, and the risk of hyperinflation is real. During economic crises, some people taking their wealth out of fiat currencies and put it into precious metals to preserve its value. Bitcoin shares similar properties with gold and, most notably, that it is a limited resource.
Why buy Bitcoin in Times of Pandemic?
There will be 21 million Bitcoin in existence, and not a single coin can be created arbitrarily. This makes Bitcoin a deflationary currency, theoretically increasing its purchasing power every day. And we think it will be an exciting moment when people start turning to Bitcoin more and more. Because it has fixed delivery, it is in stark contrast to paper (fiat) currency that is printed in trillions by central banks. It virtually crosses all physical and geographic boundaries, and it can be spent effortlessly.
Why Bitcoin and Blockchain could be Positive after COVID-19
One of the best applications of blockchain technology is smart contracts or self-executing contracts. This application of blockchain technology can also be useful in times of pandemic. For example, health records can be kept in a smart contract. Such essential data will be accessible to all countries. That is meaning any hospital or research institution can have access to it at one time. All data will also be unchanged and transparent. Digital financial innovations such as Bitcoin, smart contracts, and artificial intelligence will force governments to compete with each other, on a „virtual level,“ to provide better services at a „lower cost“ in order to attract people again. That could give more opportunities and choices for people to move and live in a „loved“ and „nicer“ world.
Can I Make Money from Bitcoin?
Usually, long-term investors buy and hold Bitcoin, believing that it will raise its price in the future. Past ten years proved that anyone who holds BTC for more than three years made big bucks. Every portfolio with 1% or more allocation to Bitcoin outperformed all other investments for the last six years, according to Morgan Creek Capital CEO, Mark Yusko. Will BTC surpass every asset on the planet? Well, we should wait and see, but one thing is sure „The perfect storm for Bitcoin“ is here!