The popularity of cryptocurrency trading continues to rise as we’ve already experienced a digitally-connected lifestyle in the 21st century. A new set of rules fuels the digital century, including the top-performing cryptocurrency trading. However, the COVID-19 has brought everyone and everything else on the planet to their knees. How is the recent pandemic affecting the cryptocurrency trading sector? Here’s every must-know regarding the COVID-19’s impact on cryptocurrency!
COVID-19 hasn’t only impacted how people across many countries work, shop, live, travel, and collaborate, but it has also affected the stock markets in the U.S., Europe, and Asia. Many people have considered the recent pandemic as World War III since it continues to wreak havoc in many countries and continents worldwide. Although many specific actions are already taken, the world struggles to shift back to normal times. On the contrary, “normal” doesn’t even exist anymore, but a new world is upon us.
Amidst these circumstances, financial sectors have definitely responded. While there are many insights regarding the impact of COVID19 in the financial market as a whole, this article highlights everything you need to know regarding its effect in the cryptocurrency trading world.
Impact of COVID-19 On Cryptocurrency Trading
With South Korea and China obtaining over 70% of the mining power of cryptocurrency trading aspects, it’s easy to conclude that the impact of COVID19 has immediately taken effect in this sector.
Over the past decade, many cryptocurrency mining platforms have been developed. Aside from that, prices are already suffering. As a result, cryptocurrency equipment is already influenced by inefficiencies. With the primary objective of balancing new algorithms, mining farms are becoming more critical than cryptocurrency equipment due to its potential ineffectiveness.
Quarantine protocols and lockdowns are the main causes of the ineffectiveness of cryptocurrency equipment due to lesser mobility into mining farms. Although many investors have considered cryptocurrency as a “safe haven”, COVID19 has caused a complete turnaround of events. Prices continue to agonize at the expense of initial assumptions. With a 15% decline in March, it was predicted that the data continued its further drop at the end of the year.
Volatility of Cryptocurrency Trading
Cryptocurrency trading is known for undergoing sharp fluctuations of pricing, including the period where the COVID19 first appeared. After WHO declared COVID19 as a pandemic, the broader cryptocurrency markets started declining tremendously. They suffered losses of more than 50% of their value between February to March.
The overall market value of cryptocurrencies dropped from $308B in February to less than $118 in March. More specifically, Bitcoin declined from $10,400 in February to less than $4,000 in March.
Other cryptocurrencies have experienced a significant decline. According to CoinMarketCap, Ether has dropped more than 65% between February and March 2020. In addition, Ripple Network’s XRP suffered a similar decline during the same time frame.
In a nutshell, cryptocurrencies and stocks have declined in value. However, rare occasions when Bitcoin had experienced sharp gains while stocks fell. That said, some cryptocurrency experts considered the divergence of Bitcoin and stocks as a “decoupling” phase.
Concerns regarding Diversification
In general, the primary variation of cryptocurrencies is that they don’t associate with more traditional assets, such as bonds and stocks. According to a published white paper, Bitcoin was recognized as a new asset class of the new decade. In the same article, it was also considered as the lowest correlated asset compared to other traditional classes. Bitcoin’s superior performance and low correlation offer decreased volatility of many portfolios while simultaneously expanding absolute profits.
Although non-correlated asset classes can definitely boost diversifications, Bitcoin had experienced a decline when more traditional assets, such as stocks, were also declining notably. However, some experts considered the occurrence of stocks and Bitcoin moving as a pair a strange circumstance.
If Bitcoin remains consistent with stock’s price movement, it reduces one significant disadvantage of cryptocurrency trading.
Positive Outcomes of Cryptocurrency Trading
Despite all the negative aspects brought by COVID19, many sectors are hopeful that they rise again after challenging times. Although cryptocurrency markets aren’t as badly hurt than other sectors, it doesn’t mean it’s not vulnerable to impending transformations in the foreseeable future. It is primarily because many businesses and financial sectors are determined to utilize available resources and measures to restart again using healthcare technology and communication.
Return on investment is one of the essential components of many businesses. Also, lockdowns and restrictions in many countries is an opportunity to apply prices in trading. Aside from that, many remarkable changes across a variety of apps and tools, such as analysis, prices, and charts, for cryptocurrency trading have been developed.
Does Cryptocurrency Remain The Safe-Haven Asset Of The Future?
Although cryptocurrencies are still in their early phases of development, they have shown good and exciting currency growths since the emergence of fiat currencies. Hence, it has sparked the imaginations and opportunities of several business owners and the public as excellent alternatives to precious metals and fiat currencies.
Many European countries, India, Japan, China, and the U.S. have seen a growing number of cryptocurrency investors. Speaking of the countries affected by COVID19, the European Union has portrayed great interest in altcoins and stable coins.
Many investors firmly believe that Bitcoin and other cryptocurrencies will exist for a longer period. In addition, many experts have been using Bitcoin for almost a decade. Bitcoin’s value has not decelerated. That said, its value continues to rise since a growing number of investors are hopeful that cryptocurrency and trading have the capacity to improve the devastated economies around the world due to COVID19.
With COVID19, many investors doubt that prices will continue to decline their supply in the cryptocurrency market. While many financial experts have considered cryptocurrency trading as a safe haven, they also described it as an excellent opportunity for long term investments as its value continues to expand.
As the recent pandemic continues to affect many countries, unfolding each day as it comes is the only way to tell how cryptocurrency trading eventually turns out.
Source: Karen Relampagos a Filipina QA Engineer who has a passion for writing. In the writing field, I specialize in online education, tech, travel, and self-development. I graduated with a Bachelor’s Degree in Information and Communications Technology from the University of San Carlos. I combine my profession with passion in the most sophisticated way; hence, I venture QA Engineering and Writing.