The COVID-19 pandemic is impacting virtually every sector of life around the world, including individuals, school districts, independent companies, and entire cities. The crypto industry is no exception. Despite past promotion as “safe haven” assets, cryptocurrencies have experienced price drops along with traditional financial markets in response to the worsening pandemic.
Some features of the crypto community could help it weather this storm. Predictions for its future vary but it’s worth watching the industry closely moving forward.
“Crypto Twitter” from earlier this year reveals that the crypto community was weeks ahead in calling for people to prepare for the coronavirus pandemic. Most crypto companies were quicker to react than companies in other industries. Those sounding the early warnings have been proven right, as governments have been putting stay-at-home orders in place and instituting restrictions on business functions.
Since the 2008 recession, the crypto mindset has included an awareness of potential market meltdowns, government leadership failures, and widespread disruptions. That awareness, along with skepticism of centralized fiat currency systems, has prepared crypto firms to take the necessary steps to respond to a pandemic, including acting independently from multiple locations without reliance on typical services.
Crypto Values Drop and Recover
Cryptocurrency prices haven’t been immune to the impacts of the pandemic. Bitcoin had been trading around $10,000 in mid-February, but lost half its value in mid-March, experiencing its worst drop in years. Other cryptocurrencies also fell sharply during that same week in March, with Ethereum down 46% and XRP down 40%.
Since that March low point, however, Bitcoin has recovered to $6,792 as of April 3. Whether this is the start of a sustained recovery or another blip in the pandemic turbulence remains to be seen.
The Pandemic Effect
In the past, many advocates proposed that cryptocurrencies would function as safe-haven assets during times of market turmoil. With its fixed supply and strict rules for the creation of new tokens, it shouldn’t be as vulnerable to fiat currency manipulations by central banks or governments. In fact, during past market stresses, cryptocurrencies have seen a rise in prices.
The volatility during this pandemic suggests to some that it wasn’t a safe haven asset to begin with and should instead be viewed as a risky asset. But there have been alternative explanations for the price declines, including the lack of an agreement between Russia and Saudi Arabia over crude oil production and the PlusToken Ponzi scheme that happened in China and Korea.
Business as Usual?
Crypto businesses have been adjusting to a pandemic-ridden world along with other industries, canceling or postponing global crypto conferences and shifting others to virtual platforms, such as with Consensus 2020, one of the largest events in the industry.
Massari set up work from home policies as early as March 3, well before most other businesses. Coinbase, a leading cryptocurrency exchange, created a multistage disease response plan:
- Employees and offices will take designated steps based on when certain thresholds are met (e.g., a rise in cases in the vicinity of an office).
- The company will conduct threat assessments on a case-by-case basis.
- Different office locations are rated differently based on local conditions.
The decentralized nature of the crypto industry confers an advantage when shifting operations away from in-person contacts. Tech workers in general, including those working with crypto firms, are already accustomed to getting projects started without meeting together in a physical location. This approach helps keep economic deals going despite pandemic restrictions.
Bitcoin companies have systems in place to allow owners to keep control over their crypto money during this type of crisis. Casa, for example, has a two-key system for safety and flexibility: a mobile key stored on an iOS or Android device with a remote backup and a Casa recovery key for use in emergencies.
Predictions for 2020
Current predictions for the future of cryptocurrencies vary quite a bit, from optimism about price rises to concerns about continued volatility:
- Matt Keiser, of the Keiser Report, predicted in early March that pandemic panic will drive Bitcoin prices up to $100,000.
- At the end of March, based on the spike in demand for gold and its increasing lack of availability during the pandemic, Keiser said, “I predict…that once people realize that they cannot get gold, they’ll start flocking en masse into Bitcoin” to protect their wealth with a reliable store of value.
- Some analysts speculate that a decline in crypto prices, along with the pandemic-related disruption in crypto businesses, could have long-reaching negative implications for the future of the industry.
- As long as risk-sensitive speculators are involved in the cryptocurrency market, there will likely continue to be price swings.
- Developing a common purpose for cryptocurrencies, versus the varied uses that exist now, could help smooth out prices.
While it appears that cryptocurrencies, like Bitcoin, won’t completely escape the impact of the COVID-19 pandemic, it remains possible that they will still outperform traditional markets during these turbulent times. With its built-in abilities to function without in-person interactions and its lack of vulnerability to centralized currency manipulations, crypto is worth keeping a close eye on during this pandemic.