Like every asset market, the cryptocurrency market has never faced an economic meltdown like the one induced by the coronavirus pandemic.
With a Bitcoin Halving event expected in May, there are doubts that pump or bullish-run expectations may not be forthcoming this time. High prices have followed previous halving events, but these happened alongside a thriving global economy.
At the time of writing, the price of bitcoin was at $6,719 on the Coindesk Index. Bitcoin’s struggle to maintain a bullish run in the first quarter of 2020 has significantly undermined its ‘safe haven’ narrative. But the cryptocurrency is not struggling alone as gold and treasury bonds have also been greatly impacted by the spread of coronavirus.
“In the worst-case scenario, adoption rates will be mildly affected, which will continue to impact BTCs price in the short to medium-turn,” Marcus Swanepoel, CEO of Luno told BusinessDay via email. “However, it’s not something that will spell significant trouble in the long-run, and bitcoin will recover to its original value. In the meantime, we’ll all be focusing on Libra and other transactional cryptocurrencies.”
In other words, the bitcoin market in post-COVID-19 will be looking for other means to increase adoption as the safe haven notion is put to bed. One of such ways is that its use as a daily payment currency could increase significantly in the coming days.
Michael Casey, an analyst with Coindesk sees fierce competition to establish dominant standards across multiple alternatives becoming the order of the day.
“It’s a diverse field, encompassing decentralized, standalone currencies such as bitcoin; decentralized, algorithmically managed “stablecoins” such as dai; reserve-backed stablecoins built on open, permissionless blockchains such as Circle and Coinbase, Paxos and Tether; new, privately defined stablecoins built on permissioned blockchains such as Facebook’s Libra; and, last but not least, central bank digital currencies (CBDCs) such as China’s Digital Currency Electronic Payment (DCEP) system.” he wrote.
Swanepoel noted that although the value of Bitcoin has dropped, it has done so at a far lower rate than many other assets, and it also came at a time where it had approached the $10,000 mark, where some pullback was expected. Gold, the closest asset to Bitcoin, saw a slump to its lowest rate in over six years towards the end of February, only then to stabilise and increase.
In March, Goldman Sachs declared gold as “immune” to coronavirus. At the time the price of gold was $1,600. As of the time writing this article, the price has grown to $1,702.
“We do, however, need a few months to see if cryptocurrencies, particularly bitcoin, will behave more as gold has in times of crisis,” Swanepoel said.
He believes the best-case scenario is people recognising Bitcoin as a safe haven, or as an asset with returns – compared against every other asset that is losing value. In that case, the cryptocurrency could become one of the world’s biggest asset classes in just a matter of months.
One good news for the market is that the number of people holding Bitcoin is likely to stay unchanged or even increased after the crisis. Quarterly research conducted by Coindesk. Most of the holders are hoping in time Bitcoin will prove itself as a haven or store of value.
The current economic crisis also presents an opportunity for Bitcoin to go into mainstream society, creating new investment options for people. In Canada, for instance, investors at 3iQ in partnership with Winklevoss twins launched a Bitcoin fund on the Toronto Stock Exchange.
The fund allows Canadians to invest in Bitcoin through their regulated investment managers, without the hassles of self-custody and with some incentives.
“Ninety percent-plus of Canada’s wealth is held in a Canadian regulated investment dealer,” Fred Pye, 3iQ President and CEO said. “An investment advisor cannot open up a Bitcoin wallet for his client,” he said. Now with “The Bitcoin Fund,” Pye said investors can put Bitcoin on their regular statement with their other investments. “Investors should be looking at diversified portfolios and this should be a part of it.”
