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Why Couldn't Crypto Industry Live Up to Its Promise Amidst Coronavirus Spread?

Javeria by Javeria - 07:13 AM Mar 30, 2020
Why Couldn't Crypto Industry Live Up to Its Promise Amidst Coronavirus Spread?

The virus which came from China and affected its first victim back in November has now taken the world in its influence. The total coronavirus cases worldwide have gone past 500,000 with major countries like China, Italy and the United States suffering the most. Currently, the world is in a critical state not merely because of the virus outbreak but due to the declining financial condition. Global financial markets are continuously declining amidst the coronavirus spread and situation has come to the point where we've entered the worse financial state in history. In this article, we are going to look into the reasons responsible for the decline in crypto Industry amidst coronavirus outbreak.

Corona’s Influence On Global Financial Markets

 

The Global market has declined by more than 30% in these past weeks with major commodities such as crude oil, Gold, Silver, and the new Safe haven Bitcoin following the downtrend. Not only Bitcoin the effect of Coronavirus has seen on the entire cryptocurrency market. So, what is the reason for this decline? Is it CoronaVirus only or there are any other factors responsible for the decline in the crypto market?

 

Cryptocurrency not alone declined due to the ongoing panic in the world, but it was the entire Global market, including major equity markets that collapsed at the same time. For most, it can be considered as the effect of Coronavirus, but it's not alone the reason. Oil stocks seem to suffer the most during this time, however its majorly because of the Crude oil price issues between Saudi and Russia.

Let's find out the reason behind the declines in the Global markets and learn why cryptocurrencies failed during corona.

Corona's Influence On Crypto And BITCOIN

 

When Global Markets went down, Bitcoin was not an exception. Bitcoin that claims to be the new Safe Haven which has no link with the Global financial and political situation is not doing very well since the Corona outbreak. Recently in mid-march, Bitcoin dropped by 50% in a few hours. Although the Safe Haven 2.0 managed to recover most of it, the reason which arises here is why crypto? Cryptocurrencies like Bitcoin are non-correlated assets which means that they have no relation with the Geopolitical and financial conditions of the world.

So what is the reason for this decline? How is corona affecting Bitcoin?

 

First, the point worth considering here is that it's Bitcoin's first recession and as it is a new asset, there can be many reasons behind its fall.

There are various factors responsible for the fall in the crypto industry amidst Coronavirus that includes:
  1. Bitcoin was created in the aftermath of the 2008 crisis, so the first being bitcoin has never faced a crisis like this before.

  2. The cash flow and liquidation was done mostly by institutional investors (large scale investors: wall street investors). Since they have other portfolios, so it was speculated that they might have taken out the cash to offer liquidity in the traditional market.

  3. China is the primary centre of crypto mining (more than 60% of the mining concentration that too official figures are based there) which was affected due to the outbreak.

  4. The recent crash was mostly panic selling.

Major Factors Responsible for Sudden Decline In Crypto Industry Amidst Coronavirus

 

Market Size

 

As the crypto market is new and relatively small as compared to the global economic markets that are worth trillion dollars, crypto markets, unlike traditional financial markets, don't have liquidity providers. The market suffered significant drops because of the spread in trade prices at crypto exchanges. Liquidity providers are responsible for controlling the spread in trade prices, but as the crypto market is tiny, it does not have liquidity providers. This makes the crypto markets more susceptible to sudden falls.

Panic Selling

 

All reasons aside, panic selling aside. The recent crash in the prices of crypto is nothing else but the fear of new traders and investors. At this time of panic large scale investors, are selling out their assets to build cash reserves. It is a time of uncertainty and people are looking out for reserving cash and more safe assets such as Gold by liquidating speculative assets like cryptocurrencies. Cryptocurrency being the relatively new market is full of new investors which justify the recent fall in the market due to panic selling.

The same day when Bitcoin suffered the sharp fall on 13 March, other cryptocurrencies like Ethereum and XRP also tanked more than 40%.

Conclusion:

 

As coronavirus scare continues with around six hundred thousand cases worldwide, Global financial markets are suffering high losses. Bitcoin, which was expected to work as the second Safe Haven after Gold also went through sharp falls followed by other cryptocurrencies. There are various factors responsible for the decline in the crypto industry amidst Coronavirus. However, the sudden crashes are said to happen because of panic selling merely.

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About The Author
Javeria

JaveriaJaveria is into the crypto world ever since she heard about it and is pursuing her interest through cryptoknowmics. She is a sensational poet, technical writer and content strategist. Not to mention that she can go crazy when it comes to vampires and Wonder woman.

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