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How Does The Coronavirus Epidemic Affect Cryptocurrency Rate?
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How Does The Coronavirus Epidemic Affect Cryptocurrency Rate?

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The increasingly pervasive coronavirus has already significantly affected many sectors of the global economy, so many today are interested in how coronavirus epidemic affect cryptocurrency. Today, many people use the main digital currency Bitcoin to protect their investments, often comparing it with gold, so it is really important to know whether it can go up in price in the near future or can be cheaper on the contrary.

The new coronavirus is most actively spreading in China and neighboring countries, according to mid-February, more than 1,500 people have already been infected. Several Chinese cities are quarantined. The epidemic may affect the value of various assets, such as Brent crude oil, due to the cancellation of many flights at airports around the world.

So, more and more experts recently think that Bitcoin is already starting to perform protective functions for investments and assets. This means that when the world experiences global upheavals, cryptocurrency begins to grow in value. At the beginning of the year, when a military conflict arose between the United States and Iran, the price of bitcoin rose sharply, which, according to many, is a direct consequence of the event. After that, many people had little doubt that the coronavirus epidemic affect cryptocurrency, but how exactly, the question remains open for many. Let us further consider the various positions on this issue and their basics.

epidemic-will-not-affect-the-price-of-Bitcoin
epidemic-will-not-affect-the-price-of-Bitcoin

Why coronavirus epidemic can affect the cryptocurrency?

If the epidemic gets out of hand, the consequences may be most serious, given the high level of corporate defaults, since China is one of the main players in the cryptocurrency market today, the country has a command state system that solves any problems tough. Coronavirus did not spread in a single province in China, so it poses a risk to China’s economic security in general. That is why the regulator will have to introduce tough measures, restrictions not only on the people’s movement, but also on that of capital.

In this way, Bitcoin, which has become a mass technology of global cross-border movement of capital, can immediately receive a huge number of new users, in the hundreds of millions, who simply can not physically carry out transactions with fiat currencies. Moreover, other countries will be able to take advantage of the fact that cryptocurrency mining farms can stop, and this will also affect the complexity of mining, which due to this will significantly decrease in the Bitcoin network.

The possibility that coronavirus epidemic affect cryptocurrency should be considered both from the point of view of changing the complexity of BTC mining, as well as from the position of the recently appeared relationship between the BTC rate and exchange-traded assets. Both options suggest the most negative scenario for the spread of the epidemic, up to a national disaster.

As for the impact of market inter asset relationships, one of the main drivers for Bitcoin is gold prices and the RMB course, the correlation of prices with which is obvious. The national coronavirus epidemic could force a state of emergency in the country, which could lead to interruptions in gold mining, and since China is the global leader in this industry now, it is likely to cause a significant increase in the price of a precious metal. Also, the RMB rate will begin to weaken, which will also lead to an increase in Bitcoin prices, as it could already be observed in 2019 due to a rather high correlation.

Last year, during the U.S.-China trade war, as in January 2020, amid the worsening situation in Iran, Bitcoin was in demand from investors, which led to higher prices. Cryptocurrency in these situations has shown interest in itself, as a reliable investment tool that can protect investors’ assets. Amid rising gold prices and the depreciation of the Chinese yuan, we can expect an increase in the value of the leading cryptocurrency.

Disabling a large number of mining farms will very quickly lead to a decrease in the complexity of mining BTC. Some believe that this may cause a drop in the value of Bitcoin, since its mining will become a more profitable enterprise than a holding, which will encourage market participants to sell their coins.

At some point, this can negatively affect the value of Bitcoin, however, it will not last long, since the redistribution of the complexity of the network will not take long. The next step will be that the market very quickly finds a balance level that is beneficial for both investors and cryptocurrency miners.

After such a short decline on the background of a drop in network complexity, we can most likely expect another wave of Bitcoin exchange rate growth. However, so far no one can tell exactly how much BTC can go up after that.

China-is-making-efforts-to-localize-the-coronavirus
China-is-making-efforts-to-localize-the-coronavirus

Why coronavirus epidemic will not affect the price of Bitcoin?

There is still insufficient data on the development of events around the development of coronavirus in China, based on which it would be possible to trace a clear relationship between the infection and the cryptocurrency market. Some financiers consider the biggest problem, not that coronavirus epidemic affect cryptocurrency, but a fall in activity due to the holidays due to the Chinese New Year. They explain this by the fact that China, as you know, is the main cryptocurrency market and the biggest user in the world.

Thus, the decline in activity in China will in any case affect the overall trading volumes and liquidity. There is a chance to see low dynamics of demand for cryptocurrencies, albeit with periodic surges in volatility.

The global phenomena observed over the past few years have had a key impact on such major indices as oil, gold, stock quotes, and the rates of major reserve currencies, but at the same time they did not significantly affect cryptocurrencies. The effective interdependence of the cryptocurrency and the blockchain industry with offline reality and fiat currencies is quite specific.

Many experts believe that the expectations of crypto enthusiasts regarding Bitcoin as a protective asset did not materialize, since there was no large-scale conversion of USD to BTC when it last lowered rates. The Federal Reserve System has not cut rates for more than 10 years, and such a reaction from the cryptocurrency market has been very revealing.

With a high degree of probability in the trader’s portfolio, there are not only crypto assets, therefore the behavior of such an investor is determined by the news of the global world. Today, only such an interconnection can be traced, at least until the cryptocurrency market ceases to be somewhat isolated.

Which of them is right?

There is currently no consensus among financiers and traders whether coronavirus epidemic affect cryptocurrency. Those who deny those relationship can be called crypto-skeptics, although on the other hand, even those experts who believe that the disease can affect the main digital coin, explain that this will happen only if the outbreak develops into a full-fledged epidemic.

China is making efforts to localize the coronavirus, so significant changes in the cost of cryptocurrency will now largely depend on how effective these efforts are. So in any case, follow the events around the epidemic and in the crypto industry.

Lisa Mcdowell Expert in loans, credit cards, insurances, and your personal, responsive guide to a bright financial future.

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