The cryptocurrency market has taken the markets by storm in the recent years. From Bitcoin to Ethereum (just to name a few), cryptocurrency has already become a more modern alternative to paper currency. With crypto, people can buy things online, despite the limitations from government regulations and other authoritative sectors.
However, with the Coronavirus (COVID-19) outbreak, everything was affected, including cryptocurrency. But did COVID-19 cripple crypto, or did it actually help crypto? Where has cryptocurrency stood through it all?
This article will attempt to investigate cryptocurrency during the harsh era of the pandemic, and how the outbreak has affected this type of currency. By taking a closer look at cryptocurrency through the lens of COVID-19, we can better understand how the currency has held up during the pandemic.
How Did The COVID-19 Problem Start?
To better understand cryptocurrency’s fate in the time of COVID-19, it’s important to understand first how the pandemic came to be.
According to the World Health Organization, COVID-19 originated from Wuhan, China as early as late December 2019. As 2020 began, the world was put on notice, causing everyone to practice social distancing, wear masks, and take extra steps in sanitizing and keeping loved ones safe from the virus. Restrictions like school closures and travel bans had become commonplace.
“Since its origin, the virus has spread worldwide, infecting millions of people in the process. Beyond that, the virus has claimed many lives – adults and children,” says Hillary Thomson, a writer at State Of Writing.
Crypto And COVID-19
With COVID-19’s financial impact on the world, there is now the question of how cryptocurrency has fared in the wake of the pandemic. While it’s true that the impact of COVID-19 on crypto is unprecedented, what does the impact look like?
One of the major changes during the pandemic was people making the exodus from shopping in-store to shopping online. This was caused in major part because of social distancing and stay-at-home orders mandated by governments and other authorities. So, in place of shopping in a physical store setting, people have resorted to shopping online for almost anything – groceries, food, devices, etc.
However, when it comes to purchasing things online, credit and debit cards aren’t the only payment methods that people will use. In fact, it’s no longer uncommon for people to use cryptocurrencies to buy things online. TRT World suggests that people can use crypto to buy any of the following items:
- Online gift cards (through third-party services)
- Bill payments (certain ones)
- Video games
- Food orders
- Hotel reservations
- Airline tickets
- Donations, etc.
With crypto being ushered in slowly as a new method of payment, people are starting to pay more attention to it, especially since COVID-19 has changed how they do their finances. How COVID-19 has impacted crypto may surprise you!
Setting The Stage For Investigation
To set the stage for further investigation, consider the following cryptocurrencies:
- Binance Coin, etc.
Now, when bring cryptocurrencies into research, it’s important to consider the following factors:
- Hedging properties
- Performance, AND
- Relationship with traditional financial assets
But with that said, such factors can change over time, especially with something like the COVID-19 pandemic. With such uncertainty in a time like COVID, global stock market investors can grow wary about the prospects of buying and selling crypto. As a result, investors can only keep watch on the markets, even as COVID-19 begins to slowly succumb to more developments on a vaccine.
We’ll take about what can possibly hinder crypto growth in a later section. Needless to say, several factors can both drive demand for crypto up or down in COVID-19 times.
The Sudden Demand
Believe it or not, cryptocurrencies like Bitcoin saw a jump in three years, thanks to COVID-19. The Guardian suggests that Bitcoin saw a three-year jump, due to investors changing their outlooks on crypto and capitalizing on them during the pandemic. Whether it’s because of the slow growth of people coming to accept and trust crypto, or investors want to shore up their income (since COVID-19 has caused economic strains ranging from furloughs and lost hours), this sudden demand for crypto is unprecedented. As a result, the so-called “cryptomarket” has taken investors, and even the financing world in general, by storm.
So, what might be causing this sudden demand in the cryptomarket? Well, let’s look at two of the most common factors:
- One explanation could be that crypto can be traded from any of the world (to a certain extent, depending on the country that you live in), whether it’s done through liquidation, or from regular trading. As a result, cryptocurrencies are being sought after by willing investors.
- Another factor to consider that investors are more wary about their finances (and rightfully so). Just the fear of banks and markets collapsing from the financial and emotional impacts of COVID-19 can have investors take action. Even people who had originally had their doubts on crypto are now investing in things like Bitcoin in the hopes of staying financially afloat.
What Has Hinder This Demand?
Although crypto has seen a rise in demand, there are still factors that can be hindering its overnight successes. Let’s explore the possible factors in depth:
- First, some investors might try to manipulate the price of crypto through something called “pump-and-dump scheming,” which Brave New Coin defines as a form of securities fraud that targets equity markets. What happens here is that some investors will artificially crank up demand, so that skeptical investors can be discouraged and drop their holdings. This act is seen as illegal in many countries, and is recommended that all investors avoid this practice.
- Next, let’s consider the idea that cryptocurrencies are federally recognized as part of the financial markets, meaning that whatever happens to them, the same can happen to crypto. For example, if stocks fall in the markets, so will crypto. Plus, in the event of a stock market crash (which the pandemic has significantly teased during its span), crypto will go down with it.
- Plus, even before COVID-19 was on everyone’s radar, crypto was distrusted, with people viewing this “new” currency as something that’s used in criminal activities.
- Even governments have stepped in to regulate the use of crypto, with countries either allowing or disallowing at their own discretion. For example, while crypto is heavily welcomed in the United States, it might not get the same treatment in any other country. (This is where you’ll have to check with your country to see if whether or not buying and selling crypto is allowed where you live.)
An Exodus From Paper Currency?
As cryptocurrencies are becoming commonplace online thanks to online buying, transactions, etc., does that mean that traditional paper currency is growing obsolete? Well, not entirely.
With COVID-19 having consumers on edge, “contactless” pay has been encouraged in many stores and businesses to help with social distancing efforts. Online, credit and debit card payments are already commonplace. In that case, crypto can fall under “contactless” pay, because it’s a digital currency that can be used online.
Now, while this boom in buying and selling with crypto is phenomenal, that doesn’t mean that paper currency is out of the question, despite the recent coin shortage that resulted in the partial closure of the economy as a response to COVID-19. Plus, while it may seem like a good idea to reduce the spread of germs by going cashless, people who aren’t able to go cashless will have to depend on their dollar bills to make ends meet.
So, what can we learn from this?
First and foremost, COVID-19 had taken the world by surprise – crypto included. While many investors may have turned to crypto as either an investment or as an alternative payment method online, this form of currency can still face backlash from the pandemic’s toll on the economy, as well as pressure from governmental regulations, at any given time. To put it another way: If something good or bad were to happen at the drop of a hat, investors must be ready for such events.
Ultimately, there’s no doubt that the COVID-19 pandemic has impacted everyone and everything. That means that not even cryptocurrencies are immune to such a crisis.
Now that we’ve viewed the cryptocurrency market through the lens of COVID-19, it’s no surprise that crypto can change, much like the rest of the economy. With stress coming from every crevice of the pandemic – all of which people have referred to as the “new normal” – crypto is neither safe from financial downfall, nor is it something that people should fear as a “cashless” titan. Plus, keep in mind that not all cryptocurrencies are created equal, with some having more value and popularity than others.
At the end of the day, crypto will continue to form at a selective and cautious pace, as the world continues to reel from the COVID-19 pandemic. With market limitations, government sanctions, and other regulations, crypto isn’t going to be the “cashless” powerhouse just yet, even as COVID-19 goes away for good.
Moving forward, cryptocurrencies are here to stay. Pandemic or none, crypto will continue to be commonplace for investors, and those looking to buy and sell online. Either way, the possibilities are still endless with crypto.