Global Outlook :
The COVID-19 global pandemic and the subsequent lockdowns have taken a significant toll on the World economy, with supply chains being disrupted, stock prices falling and trillions of USDs flooding the market in the form of stimulus from governments.
The impairment started right from late January. Cryptocurrency transactions, which were handled predominantly by China and South Korea, have also been disrupted ever since the virus first hit China before the global outbreak.
Firstly What Is Cryptocurrency?
The Formal Definition goes like this - ‘Cryptocurrency is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on a network without the need for any intermediaries.’
What this means is that cryptocurrency is a digital currency which has no central controlling authority and it doesn’t reside in any particular servers. Also, it can be directly sent from one user to another without the need for any middleman such as a bank (normal transactions go through a bank to the other person). Now going back,
Immediate Effects:
Although cryptocurrencies, due to their inherent decentralized nature, are relatively safer to use and more immune to global currency manipulations by major banks and governments. The day to day essentials, like groceries, are virtually impossible to buy with cryptocurrencies. With stockpiling by consumers and the subsequent explosion in the need for daily goods, investors moved away from cryptocurrencies, resulting in the steep drop in value in March. Contrary to popular expectation, Bitcoin fell in value in stride with the fall of stock prices.
The Value of Bitcoin over the last three months
(Notice the steep fall near Mid March and the following rise)
Shortcomings of Bitcoin:
Bitcoin was expected to act as a safe haven by some investors in times of volatility with some even going as far as to call it “Digital Gold”. But in 2020 Bitcoin has performed significantly worse than Gold, the traditional safe investment, which raised by 11%, whereas Bitcoin dropped its value by 40% on March 12, a single day. Hence, it is far from replacing gold/silver as the de-facto stable investment. This is mainly because Bitcoins are owned by less than 1% of the world and it is still in the early stages of its global adoption. This is also the reason why there is lower trust in investing in cryptocurrency and Bitcoins continue to be perceived as a risky investment.
Post-March Rise:
However, the value of popular cryptocurrencies such as Bitcoin and Ethereum have shown a rising trend since Mid-March. One reason might be the fact that in the long run, any decision taken by the government and banks in times of this crisis will only decline the value of the currency and increase the value of any limited asset like the Cryptocurrencies. With higher adoption and higher trust, Bitcoin and other cryptocurrencies might outperform other traditional assets in the future.
Cryptocurrency in India:
Earlier this year, the RBI imposed a ban on Cryptocurrency investments due to the unprecedented volatility in the financial markets. On March 4, The Supreme court of India chose to lift the ban on cryptocurrency trading. Will this be a major boom for the Indian market and the entire crypto industry as a whole with a huge economy like India’s entering the market in these uncertain times? It is not sure. But for now, the lift in the ban is a stepping stone towards the adoption of cryptocurrency in the Indian financial sector.
Conclusion:
COVID 19 had a significant impact on the global economy. While many enthusiasts believed that Bitcoins will be immune to social occurrences, unlike the stock market, digital currencies were also affected in the same way as traditional assets. On one hand, due to the massive dip in prices, the discharge of the pandemic questions the safety of digital currency, while on the other hand, due to the eventual rise, it also simultaneously assures that this was only a temporary occurrence. In short, the mass usage of digital currencies in the near future is really uncertain.
A little trivia for the Cryptoheads out there: A batch of 50 Bitcoins mined only a month after Bitcoin was found, was moved just this May 20th. Rumour has it that it was moved by the mysterious founder of Bitcoin, who goes by the pseudonym Satoshi Nakamoto, himself. What is your take? Let us know in the comments.
DISCLAIMER :
Shaastra TechShots’ publications contain information, opinions and data that Shaastra TechShots considers to be accurate based on the date of their creation and verified sources available at that time. It does not constitute either a personalized opinion or a general opinion of Shaastra or IIT Madras. The information provided comes from the best sources, however, Shaastra TechShots cannot be held responsible for any errors or omissions that may emerge.
Hey guys stick to the technical part, this seemed like financial/economic perspective. This is my opinion.