The Impact of COVID and Major Events on Cryptocurrency
- International Financial Markets Before the Global Pandemic
- The Most Popular Cryptocurrencies During the Pandemic
- Do people embrace crypto during a pandemic?
- What Impact Does the Pandemic Have on the Stock Market?
- The Election in the United States and the Financial Markets
- The Importance of Being Prepared for Major Events
The recent COVID 19 pandemic is the most critical period of economic and social turmoil since 2007. The disease was characterized as COVID 19 by the World Health Organization in February 2020.
The cryptocurrency market is often tumultuous, but the COVID 19 crisis had a huge impact. On March 7, 2020, the overall cryptocurrency market capitalization was $251.5 billion. A collapse on March 8, 2020, caused by massive sales of cryptocurrencies, led to Black Monday in stocks as well - with $21 billion lost capitalization value within 24 hours.
The cryptocurrency market took a turn for the worst on March 11, when WHO classified the COVID 19 pandemic. Two days later, this led to a 50% cryptocurrency crash in value and prices of major coins like Bitcoin or Ethereum. This crash caused many people to lose what they've invested.
Researchers have found that recent studies into the relationship between foreign exchange and the top coins cryptocurrency markets are increasingly focusing on their potential for contagion. Likewise, this could be why they may function as safe-haven properties when traditional assets seem unstable - including COVID 19 outbreaks and the global financial crisis.
International Financial Markets Before the Global Pandemic
The year 2019 is the beginning of an age where we can enjoy decentralized technology, or DeFi for short. It's short for Decentralized Finance, which includes digital assets and smart contracts built on blockchain technology that allows you to access your funds with no centralized third party handling them.
With the recent rise of DeFi, we've seen several applications and frameworks enter into this space. These include MakerDAO's Dai Stablecoin System and Uniswap Decentralized Exchange (DEX) project that will allow users to trade any token with similar characteristics through one interface on Ethereum Blockchain.
Bitcoin began 2019 on a relatively low note, trading at roughly $3,917.05. However, things started to improve in April, and the currency experienced a significant increase, with its price reaching around $13,807.00 in June.
There was no single cause for Bitcoin's summer surge, but some industry observers pointed to increasing interest for Bitcoin following institutional investors' debut of crypto projects.
Bakkt, a Bitcoin futures platform, was also officially launched in 2019, following multiple delays. Bitcoin increased by more than 10% in the 48 hours following the news.
The world's first Bitcoin futures platform is expected to boost liquidity to the market and drive more Bitcoin adoption in the financial industry.
With major financial institutions, technology firms, and other corporations worldwide increasingly acknowledging its value and potential, Bitcoin has become more than just a fad. It is now possible to pay for items using bitcoin at some online stores or gamble with an online casino that accepts these payment methods. You can even buy real estate.
The Most Popular Cryptocurrencies During the Pandemic
Ripple, Bitcoin, and Ethereum are the three most valuable cryptocurrencies in terms of market cap. Ripple, Bitcoin, and Ethereum accounted for 82.1 percent of the cryptocurrency market capitalization in December 2020. Thus, these three major cryptocurrencies will be the focus of this section.
Cryptocurrencies function as net transmitters. They have good net connectedness statistics throughout the first three months of 2019, peaking in January, February, and March when the COVID 19 pandemic crisis first wave was born. Finally, the net dynamic total return connectivity for Ethereum is more excellent than for Bitcoin and Ripple (where it is essentially zero).
Bitcoin price and volatility have had an unprecedented rise since its inception, with many people worried about how this will affect Bitcoin as a currency. However, looking back at the development history of bitcoin, we can see that before 2017 it traded for low prices even though there was still minimal volume on these trades (CBOE).
In 2018, Bitcoin prices dropped rapidly before rising slightly in 2019. Then from early 2020 to the first half of this year's summer holidays, when global quantitative easing took place as a result of COVID 19 and other events, people witnessed how Bitcoins were valued much higher at almost 40 thousand dollars per coin.
The COVID 19 and holiday effects are present in Bitcoin volatility but not in daily return. This study's tests support the impact of COVID 19 events, day-of-week impacts (Saturday and Sunday), and trade information on Bitcoin's price behavior.
As of this writing, Bitcoin returns and is currently trading at approximately $60000. However, in April 2021, BTC closed to it's all-time high of $64,800. At that same time, the COVID 19 pandemic crisis continues to impact countries worldwide, and in some cases, it's having a devastating effect on health care systems. Many countries are still experiencing intense transmission despite efforts by WHO who is doing everything possible under these circumstances.
Table 1. Bitcoin price formation before and during the pandemic.
|In December 2019, The World Health Organization was notified of cases of unidentified pneumonia in Wuhan, China.|
|The rapid increase in the number of cases outside of China prompted the World Health Organization's Director-General to proclaim the disease a pandemic.|
|Biden claims that every adult in the United States will have accessibility to a COVID 19 vaccine by the end of May.|
The rapid increase in Bitcoin assets during the COVID 19 global crisis exhibits how people embraced virtual currencies instead of other financial markets. The Bitcoin market has been used as a safe haven asset during times of economic and political turmoil. However, it does not equate to Bitcoin only performing well during a crisis. The positive effect on Bitcoin cannot be dependent on the coronavirus crisis alone. In the end, building trading strategies pay off.
The bitcoin and Ethereum communities have been at war for some time now. The two cryptocurrencies are vying to become the standard of digital currency, but an interesting new study found that long-term leadership can be seen in the short-run asymmetry between these coins' market performance rates.
The regression analysis also confirms that Ethereum is a safer haven than Bitcoin and has safe-haven characteristics. However, both cryptocurrencies have high volatility.
However, let's look back on how Ethereum performed before COVID. ETH began 2019 with $137, and after a week-long climb, it reached $156 on January 7, the highest value witnessed from January to March. Ethereum began a month-long downward trend on January 9, falling below $102 on February 7.
In August 2020, Ethereum currency reached its new heights with over $400. During that time, over 1.8 million new COVID 19 cases and 38 000 new fatalities were reported to WHO in the week ending August 30th. According to WHO, a 1% increase in cases and a 3% decrease in deaths compared to the previous week (17 to August 23). Since the outbreak's inception, almost 25 million illnesses and 800,000 deaths have been reported.
Therefore, despite the outbreak of the COVID 19 pandemic, ETH managed to pull back and break the $400 resistance.
In May 2021, the global outbreak mortality toll from COVID 19 surpassed 3.43 million. According to Johns Hopkins University, the number of confirmed cases exceeds 165.5 million, while the total number of cases is likely to be substantially higher. According to Our World In Data, more than 739.2 million people worldwide have gotten at least one dose of a COVID 19 vaccination.
In line with that, according to Coin Metrics, Ether, the digital token of the Ethereum blockchain, reached an all-time high of $4,196.63 in May 2021. It currently has a total market value of $483.4 billion, which is less than half of bitcoin's $1.09 trillion.
Ethereum's price fluctuates so much it's hard to tell if the pandemic had any effect on its value whatsoever. It even reached its all-time high during the pandemic. However, this doesn't mean that ETH can't be affected by a pandemic or disease-ridden situation in the future. Cryptocurrency traders have shown a tendency towards increased buying and selling of coins as they fear extreme volatility. One thing is clear, ETH soared during the pandemic.
The Ethereum-blockchain-fueled Ripple (XRP) price could skyrocket, potentially soaring to the top 10 most valuable cryptocurrency list before the pandemic.
In early 2021, the value of XRP had not yet reached its heights from late 2017. This digital coin is different from most cryptocurrencies because it has a more stable price and market capitalization rate than the Bitcoin or Ethereum-based coins.
The price of XRP has seen more spikes than most other cryptocurrencies, with the US SEC filing a legal complaint against Ripple in November 2020. This caused it to plummet from around 0.70 USD down to 20 cents within six months.
The Ripple (XRP) pandemic has affected the price of XRP, but it's difficult to tell if this is due solely or partly because there are legal proceedings filed by U.S. SEC (Securities and Exchange Commission). Thus, the economic policy uncertainty has its fair share of volatility spillovers concerning XRP.
Do people embrace crypto during a pandemic?
Cryptocurrencies have been seen as a haven asset during pandemics. Because of their decentralized nature, cryptocurrencies can be traded anywhere globally, providing some relief to those who would otherwise be unable to participate in trade due to government restrictions on financial transactions, making cryptocurrencies more appealing than alternatives just as everyone needs them.
Some investors fear that a crisis will lead central banks or political actors to interfere in the market. However, these same risks could be hedged by investing in cryptocurrencies- because they operate automatically and not through human intervention as other financial instruments do.
A CNBC/Momentive Invest in You study found that more people are investing in cryptocurrencies, partly largely due to the ease with which digital assets may now be traded.
More than 10% of individuals polled stated they have a cryptocurrency investment, putting digital coins fourth after real estate, stocks, mutual funds, and bonds. While the stock market has a lesser commodity price volatility, it also decreased in market efficiency during the COVID 19 pandemic.
According to data from trading platforms and wallets, the global user base of cryptocurrencies expanded by approximately 190 percent between 2018 and 2020. The increase in demographics might be attributed to both a growth in the number of accounts - which, according to the source, grew by 37% - and advances in identification. As more accounts in exchanges or wallets became systematically linked to an individual's identification, estimating the minimum user numbers associated with accounts on each service provider.
What Impact Does the Pandemic Have on the Stock Market?
The stock market is a reflection of the economy. Therefore, when there is a threat to the world economy via pandemic, it will impact the stock prices. While many variables contribute to how much of an impact a pandemic has on our markets, it's hard to measure the exact magnitude. The answer will depend heavily on a scale and quick spreading and government-issued information about containment and cure availability.
The markets responded to the crisis with a degree of rationality that has been lacking in recent times. Many may have thought it was crazy, but they were quite effective at discounting financially fragile companies and those more prone to disruption from international value chains.
In conclusion, it's not just the situation before a crisis that affects stock markets. The country's health does not influence stock markets before the problem, but rather how governments limit COVID 19 and macroeconomic policies to support companies.
The Election in the United States and the Financial Markets
Bitcoin's independence from third-party interference is one of its key properties, and it has been the subject to occasional price drops as a result. However, this does not mean that Bitcoin can never experience spikes or losses due to simply political events such as U.S. presidential elections, which could lead individuals towards other currencies like dollars instead if they fear for their safety at some point during voting season. Thus, the geopolitical risk remains when trading major cryptocurrencies and other financial assets.
It is interesting to consider how previous presidential elections have played out concerning Bitcoin. In 2012, shortly after Barack Obama won his second term as President, Bitcoin's price remained around $10.90, according to CoinMarketCap. However, the price of Bitcoin skyrocketed in 2016 when it appeared Donald Trump would win the presidential election. This was likely a result of anxiety about how his policies would affect mainstream economies, even if only temporarily
The Bitcoin market is often heralded as the perfect safe-haven asset, but recent events have cast doubt on its safety. Analysts argue that recent news has more closely correlated bitcoin with stocks than we think - in this scenario, it could follow suit when these markets digest what's happening around them.
Bitcoin's volatility is notoriously difficult to predict. When there are no historical precedents or fundamentals like economic policy uncertainty, nobody can be exactly sure how the latest election will impact the bitcoin price in five years, which has made many people skeptical of cryptocurrency as an investment opportunity altogether.
The crypto market is unpredictable, and we do not have enough data. It will likely cause a slight fluctuation in the price, but it's impossible to say how much because the amount of money flowing in and out of cryptocurrencies is volatile. That being said, it depends on who won this election which has been historically brutal from an emotional perspective.
It's human nature to invest in times of celebration and buoyancy, but it can also lead us astray if not done thoughtfully. When an investor chases their emotions, there are often detrimental consequences for themselves financially and the markets around them who aren't so lucky with these wild fluctuations.
The Importance of Being Prepared for Major Events
It's only natural that investors would want to prepare for major events that might affect the market so they are not caught off guard. Employing sound tactics to safeguard one's portfolio is important for preserving one's financial future. Investors should keep an eye on these events to be safe and avoid potentially losing money while others gain it. The frequency of news releases can increase market volatility, which means any good investor needs to have their wits about them.
Risk is a key component in assessing the prospects of an investment. Most investors, while making investments consider less risk as being favorable, but it's important to understand what kind and how much you're willing to take before committing your money or other resources into something where there might not be any return at all for years down the line if things go wrong.
The cryptocurrency market is a volatile one, with an unpredictable future. However, this doesn't mean the COVID 19 and major events have no impact on its market efficiency. In fact, these two factors can be seen as both positive and negative for Bitcoin's price depending on what happens in the outcome of each event. In the end, good financial analysis and trading strategies matter.
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