Covid-19, the deadly virus that has swept the globe has impacted everyone and still continues to spread. In this blog post I’d like to examine how the Crypto industry is being impacted by the pandemic.
Like traditional markets, we saw a significant drop in not only Bitcoin prices but alternative coin prices following the outbreak. For example, in mid February of this year Bitcoin was trading at around 10k then declined by more than 50% dipping below 4k as the pandemic worsened. In the early weeks of March we saw Ethereum and XRP (other popular alt coins) drop by over 40%. It seems cryptocurrency is not as infallible to this type of situation as we thought.
In the cryptocurrency market trade prices are driven by supply and demand rather than factors that effect traditional markets such as investors, interest rates, dividends etc. Cryptocurrencies like Bitcoin for example, generally have a fixed supply which also adds value. It seems the Covid-19 pandemic impacted all markets though including cryptocurrency. So why was crypto impacted so heavily? Isn’t the Crypto market supposed to be immune to this sort of situation?
The cryptocurrency market is easily swayed by “whales”. These are wealthy investors that hold a lot of crypto. It isn’t impossible to imagine these investors getting panicky and deciding to sell off their crypto reserves in an effort to attain more tangible assets such as gold or other precious metals. The change in supply and demand then impacts the crypto exchange platforms which in turn causes the values of cryptocurrencies to decline.
We did see an improvement in use from Stablecoins. This type of Crypto is one that is backed by a reserve asset like the U.S. Dollar. The primary benefit of Stablecoins is to offer stability with how much it’s worth. This is one of the main reasons why the mainstream hasn’t yet adopted cryptocurrencies like Bitcoin since its value is rather volatile. Stablecoins like Tether and TrueUSD are popular options that are equal to one dollar, so it was only natural to see these coins go up in rankings due to the pandemic.
At this point in time no one is really sure how long the pandemic will continue and what long term effects will occur. All we can do is continue to monitor the situation, continue social distancing and stick to healthy hygiene measures and be hopeful that the economy will return back to normal.