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Covid-19 and Immune System of Cryptocurrencies

The recent breakthrough of coronavirus pandemic has taken the world economy to the verge of collapse.

 
The recent breakthrough of coronavirus pandemic has taken the world economy to the verge of collapse. The potency and vulnerability of Covid -19 are quite high. Soon after the outbreak of a pandemic, 20,000 peoples lost their lives and millions of peoples are infected.

The massive surge in the death toll and the spread of contagion compel the central governments all over the world to come into play and take some serious measures to contain the spread of this pandemic. That leads to the implementation of lockdown and social distance across the globe.

These intensive measures have a devastating impact on the world’s economy. As many global economic surveys forecast negative growth rate of global GDP.

Companies all over the world experiencing a massive demand compression thereby stock markets like S&P 500 nosedives. Based on the recent data, many economists are of the view, this recession is worse than the 2008 global economic crisis.

The casualties were so lethal that the central governments have to delve in and they cut the key policy rates to support their business grappling with the economic downturn. Many countries like the USA take their interest rates to near zero.

Moreover, this economic lockdown also gives rise to massive unemployment as most of the businesses have severe financial constraints. According to a recent survey, nearly 32M US adults will be employed if the situation remains the same.

Governments have no choice but to take some decisive steps like promulgating an economic relief package to refrain enterprises from layoffs. Meanwhile, Trump administration has announced an economic relief package of $2 trillion and inject billions of dollars into the economy.

Undoubtedly, all assets will suffer from this economic disruption, and cryptocurrency is no exception. Its market capitalization has plummeted significantly within a couple of months.

According to the statistics revealed by the CoinMarketCap, bitcoin has lost $150 billion in a matter of days. Bitcoin prices experienced one of the most vicious drops down of 40% within the last 24 hours.

Almost all the crypto coins experience the impact of this vicious cycle and lost half of their net market valuation.

With that being said, I’ve decided to discuss the stance of the world’s most influential businessmen and institutional investors in this regard.

In this section of an article, I would like to explore how the recent economic recession can impact the prices of cryptocurrencies with an aid of different segments like VCs, cryptocurrency exchanges, marketing companies, projects and many more.

Hedge Funds

In the case of all economic recessions like 2018, hedge funds have to suffer a lot and they have to face too much risk. After all, all of their efforts are geared towards smartly investing their clients’ money and the recent pandemic outbreak creates too many difficulties for them.

One of the universally well-known cryptocurrency-based hedge fund Morgan Creek Digital that is completely owned and operated by the institutional powerhouse Morgan Creek Digital. Anthony Pompliano, Co-founder of this hedge fund asserted: “I am already expecting the massive rate cuts by the Fed in the walk of the global economic downturn due to the spread of contagion”.

Pompliano is of the view two recent events are favorable for bitcoin one is halving and the other one is an injection of billions of dollars into the economic cycle that leads to a surge in demand of cryptocurrencies as the best alternative to the traditional fiat money because the injecting of money leads to the depreciation of the local currency.

Not just Pompliano many institutional investors and economist strongly hold an opinion cryptocurrency is the best hedge to major economic disruptions like hyperinflation, currency depreciation, and recession.

Venture Capital Firms

Almost all the venture capital firms globally are cautious but optimistic about the situation. Needless to say, VC companies are an integral part of cryptocurrencies. They pour behemoth capital into promising projects like a blockchain-driven crypto project.

When they pour money into the crypto market, prices of crypto assets appreciate. Conversely, once they start withdrawing their investment prices depreciate.

It is pretty obvious amidst the Covid-19 economic crisis, all VCs refrain from investment. However, leaders must educate themselves about dealing with financial constraints and managing risk in the time of scarcity of investments.

According to Jehang Chu, a Managing Director of VC firm Venetic Capital: “This is the best time for corporate leaders to make themselves comfortable with dealing challenges and the situation will become intact sooner or later.”

Crypto Exchange Experiences Peak Volume Records

In this time global economic recession, almost all the traditional financial markets experience an insurmountable selling pressure same is the case for crypto exchange platforms. As the price of crypto assets is declining sharply thereby the insurance funds of different exchanges also adversely impacted particularly Binance.

As I mentioned earlier, traditional markets have also massively declined. But to rescue investors from hefty losses, all the traditional markets come with circuit breakers. For instance, in the last few weeks when the S&P 500 plummeted 8% then the circuit breaker is automatically triggered and the market is closed for a few minutes. Eventually, all the long-term investors and day traders get the chance to adjust themselves accordingly.

Up until now, there is no such mechanism as the circuit breaker is introduced in any of the crypto exchanges. Eventually, in the past few days, when the bitcoin price dropped 40% traders experience a hefty loss.

However, in the last couple of days, Huobi intervened in the situation and introduced a new feature that resembles Wall Street circuit breakers up to some extent. The idea behind the introduction of this smart feature is to secure investors from behemoth capital loss. Thereby when the price of crypto coin further nosedive in an upcoming future then this feature will automatically be triggered.

Market Feels the Impact in Both Ways

No one can better realize the damage caused by the pandemic on a crypto market than the cryptocurrency marketing agencies. Based on their experience of dealing with the crypto coins, they can speculate whether or not the market will turn bearish. Due to efforts put in by these marketing companies to rescue individual investors from entering the market at the wrong time, these companies are continuously increasing their market share.

Elad Mor, Co-Founder of MarketAcross, a leading Blockchain PR agency asserted: “Those who have been in the crypto market for a while have gone through setbacks of this sort before, but the newbies are in the panic mode”.

“At this situation, it is comparatively easy to specifically mark the crypto veterans – those who’ve been around in this market for a while are cool as a cucumber, seeking this crisis as the best opportunity and even launching PR and content marketing campaigns that revolve around the complicated time we are in at the moment in the light of Covid-19 pandemic”

Conclusion

In any case, the world has yet to decide how much time will this virus take to stop completely and what are the financial consequences of it. Even though governments are taking some serious measures to eliminate or at least reduce the hazardous economic impacts of this disease, but some people are scared this pandemic causes serious trouble to the corporates who have already been inflated too much for quite a long time.

Needless to say, this situation is a life-changing opportunity for cryptocurrency enthusiasts. Once you examine the price chart pattern of cryptocurrency, you’ll realize the crypto market has gone through many booms and busts in the past few years, but in the last crypto market always managed to bounce back from the crisis. Besides, cryptocurrencies are a viable alternative to traditional financial instruments.