The coronavirus outbreak has created mass panic for the people around the world. Besides traditional financial markets, coronavirus is affecting the Bitcoin price. Therefore, it is high time to see what investors will see regarding the price of Bitcoin.
23 March, 2020, | AtoZ Markets – Bitcoin has a rollercoaster ride at the beginning of 2020. Its value has been a lot of drama since the creation of Bitcoin. However, there were several downward movements along the way of creation until today. The latest disastrous movement happened to Bitcoin is due to the outbreak of coronavirus. During the time bitcoin faced the biggest one day drop in the history where the price fell from $7600 to $5300 in a day. Therefore, the popular cryptocurrency moves down to $4,000 in a moment along with the collapse in the US stock markets and indices.
The price of bitcoin has reached $10,000 earlier after the outbreak of coronavirus. Therefore, the question that many crypto investors are asking, why the Bitcoins price failed to deliver its promise as a safe-haven asset during the turmoil in the financial system?
Cryptocurrencies During the Financial Crisis
We all know that the cryptocurrency is decentralized. No government or financial Institutes can control the cryptocurrency market. Therefore, in the case of the financial crisis and economic turmoil, cryptocurrency would be a trustable and secure way of making transactions as it is not controlled by any third party.
In the traditional currency system, the Central Bank prints money and controls the overall supply of money within the country. The central bank can increase the supply of money, or it can decrease the supply of money. The government takes action according to the condition of the economy. For example, in the case of recession, the government encourages investors to invest more in the different sectors of the country. So the government usually provides benefits and takes fewer tax charges to encourage investors. On the other hand, when the money supply increases to the people, the government tries to increase the interest rate by discouraging people from taking money from the bank. This is a good sign that the government is controlling and taking care of the people’s needs but what will happen when the government gets bankrupt?
In that case, what you have in your bank account is nothing but some paper.
Therefore, It is good to use cryptocurrency for the people who don’t want to let the government or other people know how much money he owns. This concept brought cryptocurrency very popular among people. So in case of a coronavirus outbreak or financial recession cryptocurrency should work as a safe haven to investors.
How Coronavirus Affected the Bitcoin Price?
As we have seen in the earlier section, bitcoin works as a safe haven as it is not controlled by the central bank and governments like Fiat currencies. Many investors and crypto enthusiasts believe that cryptocurrency and its tokens are safe even due to any financial crisis. Bitcoin is not a subject of manipulation by the controlling authority as the overall supply and demand of Bitcoin is fixed. If we look at history, we can see that the Bitcoin and other cryptocurrencies rise in terms of any financial uncertainty. For example, the Federal Reserve’s injection of liquidity is an indication that investors may find security by investing in the bitcoin. Although the coronavirus is affecting bitcoin, it is not surprising to see the price rise above the 10,000 level again.
According to the market structure, the price of Bitcoin was supposed to move up during the financial crisis like the coronavirus outbreak, but why did it fail below 4000 levels?
#1 Bitcoin Breakout with the News of Coronavirus
Bitcoin works as a safe-haven during the global uncertainty. In 2020, Bitcoin achieved almost 35% of the gain and hit nearly high around $10,000. There is a fundamental reason behind this. It is very common to see investors invest in safe-haven currencies during any uncertainty like coronavirus. As the Chinese economy is weakening, investors have piled in on bitcoin because of its safe-haven nature.
At the beginning stage of the coronavirus outbreak Chinese stock indices, CSI 300 has fallen down by 9% with Shanghai Composite Index nosedived 8%. In the meantime, Bitcoin’s price rose above $10,000, indicating that investors were moving their money in the crypto market.
#2 Bitcoin Mining Difficulty Increases
It is true that the coronavirus outbreak is affecting the bitcoin mining.
Chinese authorities have started to shut down miners to contain the spread. One of the famous crypto miners of China, Jiang Zhuoer, announced that the police had forced mining firms into closure.
Due to the cheap electricity and other resources, China controls 65% of bitcoin mining. Therefore, the loss of mining firms may adversely affect Crypto miners. On the other hand, the centralization of bitcoin mining may reduce support industry ideals. However, there is a possibility that the lack of miners may affect network health.
#3 Chinese Quarantines Infected Cash
During the outbreak of coronavirus, the Chinese government stepped in to clean cash. Therefore, Chinese people started to use ultraviolet lights and high temperatures on banknotes, the central bank disclosed it in a press conference. This strategy includes not using banknotes as fear of virus infection. Therefore, the increase of cashless transactions is a positive sign for bitcoin to get familiar with the people of China.
Most of the people thought that the investment in Bitcoin would increase during the outbreak of COVID-19. The reason behind this is that the bitcoin is considered as a ‘’safe-haven’’ asset. However, it is important to remember that the value of bitcoin is driven by demand, not by fundamental factors like interest rates and GDP.
#4 Does Coronavirus Impact Bitcoin Halving?
Bitcoin halving requires new mining elements every time. Once a Bitcoin halving happens, the existing elements become unused for mining. Therefore, mining farms replace old equipment with new items. Most of the miners around the world are located in China. Therefore, with the Coronavirus outbreak, it may become pandemic to miners in China. The extension of quarantine may extend even more and may put an impact on the Chinese economy as well as Bitcoin mining farms. The outbreak of the virus may limit the new machinery manufacturing by limiting the ability of the mining farms’. Therefore, there is a possibility that the Bitcoin halving may delay further to the reduced hash power.
What Is Ahead of Bitcoin?
Give the coronavirus outbreak expanding there will be a negative impact on Bitcoin along with other cryptocurrencies. The main reason is that Bitcoin and other cryptocurrencies are not usable for all public around the world as it is not easily exchangeable. Most people cannot use Bitcoins and other cryptocurrencies for their day to day use like food and clothing. In such a type of crisis people, usually look for essential and easily accessible currency systems that Bitcoin does not have. We all know that Bitcoin is a safe haven currency as long as it has enough mining support. Therefore, the inaccessibility in Bitcoin mining would negatively affect the Bitcoin price.
If we look at the other markets, we can see the other Global markets are falling. Therefore, if Bitcoin can pass this test, it will be a great day coming for the world’s number one cryptocurrency. Many investors and analysts believe that Bitcoin will go above the $20,000 level again if it can overcome the current situation.
Therefore, investors should focus on fundamentals besides technical elements to measure the Bitcoin price movement for the coming days.
There are some investors who believe Bitcoin as an alternative to fiat currencies. However, most of the investors still believe that there is no logical reason to hold cryptocurrencies as an investment. They believe Bitcoin is something to sell at high and buy at low only. They ignore its value to use it as a regular day to day transaction.
However, there is a possibility that people will understand the actual use of bitcoin. Currently, there are a lot of outlets in the world to accept bitcoin as a payment method. As the coronavirus outbreak is affecting bitcoin, the main challenge is to overcome the volatility.
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