Many have considered Bitcoin as a new safe haven asset. However, the coronavirus adverse impact on cryptocurrency markets was not what many analysts expected. How will the crisis impact Bitcoin and the overall crypto market further?
17 April, 2020 | AtoZ Markets – COVID-19 is an issue that affects each and every aspect of life, especially the global economy. Moreover, not only does it have an impact on a financial state, but it also affects individuals’ mental states. For instance, the cryptocurrency markets were and are severely influenced because of the pandemic spread globally.
Bitcoin Correlates with the Oil Market Breakdown
First off, it would be reasonable to mention that the most omnipresent cryptocurrency rate of the Bitcoin, drastically fell by a quarter on 12 March. Such a change occurred for the first time since May 2019, falling below $6,000 (precisely $5,300). Upon further examination of the experts, it becomes apparent that the price drop of the Bitcoin correlates with the breakdown in the oil market. Along, with the news that widely known coronavirus has been transferred from epidemic to pandemic disease.
As a consequence, investors panicked and began to sell cryptocurrencies along with securities, assets, and bonds, and, conversely, started buying gold. However, investigators suggest that the rehabilitation of the digital currency market needs to take some time, and the aforementioned market is likely to be revived by the middle of the summer. Equally important, a couple of days ago, the US signed an agreement with Saudi Arabia and Russia that leads to the record cuts in oil production.
By the same token, various other digital assets manifest dynamics likewise. For instance, Ethereum dropped down by more than 25% (which is now $120), Ripple – by 17% (up to $0.17), Bitcoin Cash – by 30% (approximately $180), and Litecoin – by 23% (around $35). However, a word of caution – the data is accurate for the end of March 2020. The total market capitalization of digital money diminished by a one-fourth – to more or less $170B.
Intensification of Panic in the Global Financial Market
Aside from that, specialists extensively relate this issue with the intensification of panic in the global financial market. For example, the 12th March trading session divulged that the most powerful US stock market indicators, Asia, and Europe displayed a serious drop. Besides, the Shanghai SSE Composite Index fell by 1.52%, and the Japanese Nikkei – by 4.41%. On the other hand, in the interim on European markets, the French CAC 40 index decreased by 12.3%, the English FTSE 100 – by 11%, and the German DAX index – by over 12%.
The US market did not demonstrate more positive results, to say the least. Apart from a huge downfall of transactions, a variety of people began to reorganize their investment planning and, above all, sell cryptocurrencies.
Coronavirus Adverse Impact on Cryptocurrency Markets
The deadly COVID-19 posed an extreme fright in the global financial market and people already start speaking of a new recession. Interestingly enough, it happened right after the WHO announced that the outbreak of a novel virus had become a pandemic. In the meantime, the decrease in oil prices triggered the price of assets, bonds, and securities globally. More importantly, it happened on 9 March at international bids. Where oil prices dropped down by more than a third and made it the most draconian catastrophe since 1991. The reason was the unexpected collapse of the OPEC alliance that happened on 6 March, where the parties were unable to agree on an additional reduction in oil production and made a determination to relinquish all previously taken obligations completely.
Given that investors used to see digital assets, securities, and currency as an alternative to the contemporary financial system. So with what is going on today, the situation is slightly changing. Meaning that by reason of the oil cutback, the market of digital money, Bitcoin, Ethereum, and so forth, fluctuates respectively. Which, in turn, causes second thoughts regarding its stability and creates a status of risky assets. Hence, this means that the cryptocurrencies, have to be sold first during market turbulence.
Will Crypto Bulls Take over again?
It is clear that COVID-19 has a terrible impact on the global economy, but also on the world’s largest manufacturing country of the world. This reflects in the market of electronic money, which altogether leads to the reduction of prices. A plethora of investors tend to sell their possessions because they browse parallels between oil prices and cryptocurrencies. This makes them think that both aspects are tightly connected. Indeed, the current situation is rough. Even though the crypto market might find some correlation with oil prices. There are lots of favorable prognoses that the market of cryptocurrencies is likely to go up and settle.
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