Analysis

Can Coronavirus affect cryptocurrencies?

Financial markets plunge due to coronavirus

Faced with uncertainties related to the coronavirus epidemic which has now affects more than 80,000 people the financial markets are reeling. Wall Street had one of its worst trading sessions in more than two years this week, while the CAC 40 recorded its worst session since mid-2016.

The main stock markets panicked in the face of the accelerating spread of the virus outside of China and the potential economic consequences by losing more than 3% on average.

Bitcoin also suffered similar losses yesterday.

“There is certainly a little bit of fear in the Bitcoin market. However, it is not at all the panic that we are seeing today on Wall Street with the flight to quality. […] 3% is a very different figure for stocks and for Bitcoin, ”said Mati Greenspan, founder of the analysis company Quantum Economics and former senior market analyst of the copy trading platform eToro .

While a price drop of such magnitude is not unusual with cryptocurrencies, is the Covid-19 infecting digital currencies?

What negative effects of the coronavirus can we observe on Bitcoin and altcoins?

The main negative impact of Covid-19 on BTC is that of the slowdown in mining activity in China and the production of mining machinery.

While the country controls 66% of the computing power of BTC, the consequences on the blockchain seem limited. Indeed, the network continues to develop and to offer an even more secure environment. The hash rate is increasing and is even evolving close to its highest according to data from Blockchain.com .

The other significant negative consequence linked to travel bans and restrictions concerns the cancellation of marketing meetings of numerous companies with potential crypto-clients, particularly in China.

As this country is one of the most important poles for underground crypto-investments, it could be that this potentially disrupts fundraising and investments in the sector and eventually weighs on the price of digital currencies.

The Ethereum community has also just discovered that the long-awaited EDCON 2020 event (Ethereum Development Conference), which was to take place in Vienna in April, has just been canceled due to the virus.

This event aims to “foster the growth and adoption of Ethereum among developers, companies, research institutions, students and governments” explains EDCON on Medium.

While the first three events had made it possible to connect and help more than 200 projects and stakeholders to use in one way or another the Ethereum ecosystem, the cancellation could potentially have an influence on the development of the network.

Can geopolitical and economic uncertainties linked to the coronavirus be beneficial for cryptos?

The question that many analysts and investors are asking is whether we can still consider Bitcoin as a hedging value or even an asset safe from the movements of traditional markets.

Many Bitcoin advocates believe that digital assets can play an important role in protecting themselves from the volatility of traditional stock markets. Bitcoin is not called “new digital gold” for nothing after all!

If the first digital currency by capitalization could sometimes be negatively correlated with traditional assets, and positively correlated with gold, as at the beginning of the year with the tensions between the United States and Iran, this was not the case yesterday.

And yet, several crypto-experts still believe that the coronavirus can strengthen the role of refuge investment vehicle or diversification of Bitcoin.

Indeed, investors (especially institutional) are looking for assets that are poorly correlated to traditional markets to diversify their portfolios and which offer alternative solutions with returns that can be (very) high.

Coronavirus – Positive or negative impact for digital currencies?

Although it is too early to predict the extent of the coronavirus on the world economy, it is already known that its effects should dampen growth by several percentage points this year.

According to the Managing Director of the International Monetary Fund, Kristalina Georgieva, the Covid-19 is “jeopardizing” the economic recovery and could cause global growth to lose 0.1 point.

The measures taken by the Chinese government to fight the virus like quarantines have indeed already affected the country and its trading partners – and we do not know when the situation will improve.

As an alternative investment vehicle, cryptocurrencies could, therefore, benefit from it.

Leave a Reply

Your email address will not be published. Required fields are marked *