We are facing challenging times globally, that affect all of us, economically and in some cases our existence. The coronavirus is a global pandemic that has brought the world economy to a grinding halt. While we do not know how bad it may turn out to be, a crisis can alway be an opportunity. It can help us reshape and implement digital strategies and create new opportunities that accelerate the application of new technologies. How will Bitcoin and cryptocurrencies fare during this chaos?
Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and a weekly columnist at DailyFintech.com.
The Chinese word for crisis is the combination of two characters, crisis “危” and opportunity “机”. The ancient Chinese understood full well, that the true nature of a crisis is an opportunity in disguise.
The coronavirus has infected everything from stocks to Bitcoin. Despite the fact that cryptocurrencies work against the grain of the traditional financial system, because they operate without the need for banks, a couple of days ago cryptocurrencies were not immune to the downturns of traditional financial markets.
The price of Bitcoin witnessed a bloodbath on Friday. Bitcoin’s price dropped 52% in a single day, compared to a 6% drop for gold and a 9.5% loss for S&P’s.
Not only was Bitcoin was hit hard during the week, every asset class experienced its worst since 2008. For the second time in its history, the New York Stock Exchange stopped trading when a market drop triggered its internal circuit breaker, on March 13. This fail-sale system was put in place after the Black Monday stock crash of 1987.
This week Bitcoin’s price suffered and it was one of its most devastating crashes.
While market movements were primarily connected to developments within the cryptocurrency industry, such as favorable regulation being introduced, or rumors that a country is developing its own cryptocurrency, many considered tokens as a safe haven from the uncertainties of the broader financial markets. The idea that Bitcoin’s price is unaffected by events, like the political crisis between Iran and the US or the spread of COVID-19, was displaced this week.
Everyone was selling everything, just like in the financial crisis of 2008–2009. People were trying to minimize their risk across all asset classes. But one person didn’t seem phased by the sudden drop in crypto prices:
This is the first time in a while I've felt like buying bitcoin. That drop was too much panic and too little reason.
— Edward Snowden (@Snowden) March 13, 2020
Market panic is a virus we can contain, yet people tend to be very emotional and susceptible to herd behavior. Cryptocurrency is no exception here. Crypto lovers and believers are likely to buy the dip, while most others will panic and dump their crypto assets, causing huge price drops.
When panic hits, most people gravitate away from risky assets and revert to survival mode. People are selling off their Bitcoin to get liquidity, in case the coronavirus pandemic gets even worse. We can’t use Bitcoin to pay for basic things, so cash is the only way to buy food and medicine. It’s possible that retail investors may have sold their BTC to make sure they have enough money to buy extra food, medical supplies and cover other monthly expenses, when prolonged quarantines prevent them from working and making money.
But, cryptocurrencies may have not lost their safe-haven status.
It’s been reported that the reason behind the Bitcoin’s prize drop is a Ponzi scheme by PlusToken. In recent years, PlusToken has scammed cryptocurrency investors in China and Korea for roughly $2 billion, in Bitcoin and other cryptocurrencies. Sales of Bitcoin by PlusToken may have been a contributing factor, in starting the price avalanche, with the con artists behind the Ponzi scheme moving their crypto holdings in ways that would make it more difficult to track sales.
Recently, Warren Buffet spoke about the coronavirus and he said:
“I’ve always felt a pandemic would happen at some time, I’ve actually used the term in describing things that can interrupt the progress of not only this country but the world… there will be interruptions, I don’t know when they will occur and I don’t know how deep they will occur, I do know they will occur, from time to time, and I also know that we’ll look better on the other end.”
A crisis is always an opportunity. The coronavirus crisis provides the opportunity to change everything and do things differently. To have any kind of success we need to change our thinking and bring out the entrepreneur in every one of us, that can sense quickly, take quick action and manage in uncertain conditions.
From an economic standpoint, the coronavirus pandemic could be the perfect opportunity for global economies to wipe the slate clean and of past sins like unsustainable inflation and debt creation. The global economy is running out of options when it come to dealing with recession. Lowering interest rates to encourage borrowing and spending, only creates artificial credit bubbles.
The financial world as we know it, is now changing. Central banks will digitize money supply. Several CBDCs (Central Bank Digital Currencies) are being researched and developed in many countries globally. If the coronavirus hadn’t hit Wuhan, China’s digital Yuan would already be released. Digital surveillance and unmitigated printing powers, could allow financial policymakers to build better economies.
Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)