Epic Crypto Uplift From COVID-19 Pandemic

The impact of COVID-19 across economies, industries and communities has largely been negative, with the hardest hit being travel, hospitality and aviation.

George Colony, chief executive officer of Forrester, mapped out four phases to the pandemic for the U.S. that apply to most countries. Phase one (infection) runs from Jan. to mid-March; phase two (social distancing) March to mid-May; phase three (management) — the most challenging phase — runs from mid-May into 2021; phase four (eradication) occurs sometime between April and June 2021.

Colony warns that should Phase Three be “mismanaged by companies, states, and the federal government, we will not drop back to Phase Two — we will loop back to Phase One and start the process from the beginning. This will risk a year-long disruption of the economy rather than the three-month disruption caused by Phase Two.”

An alarming admonition, to be sure. Yet, amidst the general doom and gloom, some other industries are opening up new areas of growth. Food delivery services, tele-conferencing apps, movie-streaming services, medical supplies and equipment have experienced such massive surges in demand that keeping up is causing its own set of problems.

All-time high in crypto trading volumes

Another industry that has experienced unexpected growth and interest is the crypto industry. While COVID-19 exposed an initial short-term correlation of Bitcoin (BTC) with traditional assets, the market volatility in cryptocurrency prices has led to a spike in trading volumes.

Amid a reversal of the three-year market gains under Trump and stocks in Europe falling to their lowest levels since 2012, the start of the pandemic saw unprecedented fluctuations and price swings in the crypto markets. On March 12th, BTC fell under USD 4,000 while popular tokens such as ETH, XRP and LTC experienced double-digit falls.

Major exchanges such as Binance, Huobi and OKEx recorded a significant rise in volumes as traders rushed to capitalize on these fresh opportunities. Aggregated daily and weekly volumes began reaching all-time highs, showing substantial pick up in investor interest.

According to Binance, “derivatives trading activity increased as traders and investors rushed to capitalize on opportunities to hedge and participate in the selling momentum. Unsurprisingly, the derivatives markets became the go-to venue for them to take advantage of these opportunities.”

India’s largest trading platform, WazirX, saw its daily volume grow over 470% in the last month. Besides the sharp price movements, caused by COVID-19 uncertainty, which triggered more trades, the other contributing factor was the Supreme Court’s lift of the Reserve Bank of India’s controversial ban on crypto trading in India.

According to Ashish Singhal, chief executive officer of Sequoia Capital-backed CoinSwitch, the lifting of the ban “has fueled new energy in the market. The volatility in the market because of COVID-19 is also encouraging more people to trade in the exchanges.”

Evolving niche

One important point to note is that even before COVID-19 came on the scene, the digital assets economy was evolving and maturing.

There were no other alternatives to the mainstream markets before Bitcoin. Built on a decentralized network protocol — a public blockchain — Bitcoin offered a store and transfer of value in a digital currency that was theoretically impervious to manipulation by central banks and global financial institutions.

COVID-19 has proven to be a litmus test of sorts for that theory.

We can attribute the initial correlation between traditional and crypto market asset prices to the general FUD (fear, uncertainty and doubt) experienced globally.

However, since then, the crypto markets have bounced back with a measure of resilience. BTC traded for as high as USD 7,300 on April 9th, and at the time of writing is at USD 6,700 with many cryptocurrencies also regaining prices pre-March 12. This is because BTC has long been the barometer for all other cryptocurrencies. Analyses over wide ranges of time consistently show that the prices of most cryptos — especially of Ether (ETH) — depend on the BTC value.

Another encouraging sign for the crypto market is that network fundamentals are also showing recovery signs with the BTC mining hash rate reportedly having regained 34% since the carnage of March 12.

Decentralized, P2P and Borderless

In fact, one can say that situations like the ongoing pandemic are the perfect backdrop against which mass adoption of decentralized, peer-to-peer and borderless payment mechanisms can happen.

Working remotely, stay-at-home orders, travel bans and restrictions have no impact on crypto transactions as they can be sent and received in the safety of people’s homes. Stablecoins are looking like safe havens for those who want to remain in the markets without too much risk exposure and have experienced an influx of funds from traders and investors.

In times like these, even precious metals like gold and silver face challenges from supply disruptions and logistics. Meanwhile cryptocurrencies, lines of code in essence, exist in cyberspace, neither restricted by state borders nor transportation challenges.

Especially in this current worrisome economic landscape of government bailouts and helicopter money, investors and traders will need better investment instruments over the long term.

As American venture capital investor and billionaire, Tim Draper of Draper Associates, recently declared, “when the world comes back, it will be Bitcoin, not banks and governments that save the day.”

Photo credit: iStockphoto/Eetum