If the coronavirus first appeared to be purely a health crisis, the last few weeks have demonstrated that it’s anything but. The global stock market…
If the coronavirus first appeared to be purely a health crisis, the last few weeks have demonstrated that it’s anything but. The global stock market has plummeted, and many sectors currently deemed non-essential are facing mass closures, wreaking havoc across industries including travel, hospitality, and retail.
The crypto markets haven’t escaped unscathed either, reflecting the global financial meltdown. On March 12, the price of Bitcoin crashed over 40%. The timing couldn’t have been more unfortunate, given that the price of crypto had started to show long-awaited bullish signals.
At the time of writing, there have been tentative signs of recovery in the price of Bitcoin, but not yet to its early March levels. The upcoming Bitcoin halving in May perhaps still offers a glimmer of hope that the markets will rebound in the next few months.
Whether or not such a rebound will extend to the once-burgeoning DeFi movement remains to be seen. In mid-February, before coronavirus panic took hold, there was over $1.2 billion locked in DeFi.
However, as crypto prices dropped dramatically on March 12, DeFi suffered it’s first “Black Swan” event. Over $4 million worth of Maker loans were suddenly not backed by any underlying assets, putting Ethereum’s most prominent dApp in within a whisker of an emergency shutdown. Currently, total assets invested in DeFi stand at a little over $500 million, less than half of the 2020 peak.
So, is there hope for crypto? Perhaps things aren’t as bleak as they may seem.
Before the COVID-19 panic took hold, enterprise adoption of blockchain was looking promising. Even as recently as early March, reports emerged that three-quarters of executives see blockchain as a strategic priority in 2020.
With the sudden drop in share prices, it remains to be seen if companies will still set aside budgets for digital transformation efforts. However, we approached Lior Yaffe, Lead Developer and Co-founder of Jelurida, the company powering the Ardor and Nxt blockchains for his take on things. He believes it’s not so clear-cut, stating:
“Cryptocurrencies exist in the virtual world, so as long as people have a functioning internet connection, and a large proportion of the population is still healthy, it’s hard to see any direct impact of the pandemic on blockchain adoption.”
The Bitcoin price crash certainly appears to have piqued the interest of some retail investors. Fiat-to-crypto onramp provider Simplex reported that buy-in to crypto rose four-fold on March 12-14.
“It’s clear that many people have seen the recent dip as a buying opportunity rather than a sign that crypto’s investment thesis has been invalidated,” Simplex CEO Nimrod Lehavi told The Block.
European-based investors, in particular, bought into BTC as it sank to $6,000. It’s undoubtedly no coincidence that Europe was the focal point for the virus over that week.
The rising popularity of cryptocurrencies has long had regulators scratching their heads. Some countries, such as Switzerland or Singapore, have taken a more relaxed, pragmatic approach to the technology, leading to a proliferation of startups in these hubs.
However, others, including the US and India, have tended to be more opaque in their treatment of cryptocurrencies and coin offerings. This approach has led to accusations of innovation being stifled in these countries, which are home to rich pools of programming talent.
Lior Yaffe believes this disparity in approach between different governments is also visible in the efforts to tackle coronavirus and explains how he thinks it’s hindering success in both cases.
“A much better approach to dealing with the pandemic would have been for a global team of experts, responsible for the wellbeing of humanity, to issue guidelines based on objective information, thus setting aside political considerations.”
Whether or not the global and crypto economies can survive the coronavirus panic is probably a matter of how long the crisis lasts. After all, the quicker that researchers can find a vaccine or that containment measures take effect, the faster things will be back to normal and the economy can start to recover.
However, the damage could be felt elsewhere. Yaffe added a final comment, explaining:
“The pandemic has hit when interest rates are historically low, and many countries are heavily indebted. Added to this, citizens of many countries have already developed a deep mistrust towards their governments, and combined with the fallout of the pandemic, we could see a tipping point that might have a long-lasting effect.”
If this last point proves to be accurate, then it could prove to be a pivotal tipping point for cryptocurrency adoption. After all, Bitcoin and several other cryptocurrencies don’t operate under any central control. Therefore, individuals who are disenfranchised with the actions of their governments may seek to ensure their finances are fully within their own control.
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