Unquestionably, the year 2020 has entered history as one of the worst years for the global economy since the 1929 crisis. The coronavirus pandemic has “melted” stock markets worldwide, overturning all economists’ forecasts and creating a roller coaster effect on the economy. This led even more people to buy bitcoin with credit card and by other means such as P2P marketplaces.
However, the crypto market reacted differently. While traditional segments had a massive decrease in investments, cryptocurrency markets grew exponentially, especially considering the constant spikes in the price of bitcoin, followed by Ethereum and other digital assets.
In this article, you will find out an overview of the effects of the COVID-19 pandemic on the crypto market.
COVID 19 Pandemic vs Cryptocurrency – Bitcoin as a Powerful Reserve of Value
On 29 March 2021, the value of gold – humanity’s oldest value reserve – fell 20% in the global market, which contributed to reinforcing Bitcoin’s role as a value reserve amid the COVID-19 financial crisis. Gradually, the gold market is showing signs of fatigue and accumulating devaluation, contradicting the status of an economic protection asset related to the precious metal.
After breaking the record of $ 2,000 per ounce in 2020, gold has faced continued devaluation in recent months. Over the past six months, inflation and currency devaluation have stripped gold of the prestige of being the ultimate hedging asset.
Meanwhile, its biggest rival, Bitcoin (BTC), known in the crypto market as the “digital gold”, has accumulated an increase of more than 900% in the last 12 months, staying further away in terms of price from the gold market and the financial market.
In this context, the oldest bank in the United States, BNY Melon, has released a report to discuss the similarities between gold and Bitcoin. In the study, the entity recognized BTC as a store of value and a medium of exchange. Plus, the institution has plans to adopt Bitcoin in its reserves.
COVID 19 Pandemic vs Cryptocurrency – Digital Assets Replacing Fiat Currency
While it is plain to see local currencies suffering dramatic devaluation worldwide, Bitcoin demonstrated resilience during the peak of the pandemic, managing to avoid abrupt price falls and has since accumulated an appreciation of more than 80%.
Even details like the fact people did avoid interacting with physical money to avoid the virus contributed to an increase in Bitcoin’s popularity among the masses.
Hence, while Bitcoin grows stronger all over the world, both in terms of popularity and valuation, most central banks are struggling to deal with the new façade of the economy post-COVID 19.
Logically, it is impossible to avoid innovation. The era of fiat currency is fading away, especially when it is losing prestige both as a reserve of value and as means of payment.
Plus, fiat currency has plenty of other problems. Monetary transfers between different banks and countries are bureaucratic and expensive.
The dynamic that drives fiat currency is based on inflation, which is becoming a global issue as money loses its value around the world. Clearly, the current system has to change, and this much-needed wave of change was kickstarted by Bitcoin.
COVID 19 Pandemic vs Cryptocurrency – Institutional Adoption of Cryptocurrency
Although they appeared only a decade ago, cryptocurrencies are already being adopted among large traditional financial institutions, including investment funds and banks.
Even though the majority of entities in the field still do not believe in the potential of digital assets, it is impossible to deny the eyes of investors are increasingly focused on the crypto industry.
There is a growing wave of adoption of cryptocurrencies among financial entities linked to governments in different countries. An example of this is Deutsche Bank, Germany’s largest bank.
Deutsche Bank’s investment director, Christian Nolting, recently stated that “cryptocurrencies are here to stay”. While reinforcing the fact that digital assets must be treated carefully due to their volatility, Nolting believes in blockchain technology as a gateway to the future of banking.
Plus, it is impossible to ignore the massive investment in Bitcoin made by giant players such as Tesla and MicroStrategy. Recently, Tesla acquired $1.5 billion in Bitcoin, which helped to boost the appreciation of the asset at unprecedented levels.
It is safe to affirm that the rise of cryptocurrency is just the beginning of a disruptive movement towards a decentralized global market. Cryptocurrencies are slowly replacing fiat currency in transactions, and growing in terms of popularity around the world.
The crisis generated by the COVID-19 pandemic reinforced the fact that cryptocurrencies are not just a hype train. Instead, digital assets are valuable and solid assets in terms of reserve of value.
Different from fiat currency, cryptocurrencies are seamless to trade and easy to use, as they do not rely on banks or any sort of middlemen. Plus, cryptocurrencies also serve as valuable hedging in difficult times.