The COVID-19 pandemic has infected over 900,000 people across the globe, and government-enforced lockdown measures to curb to spread of the virus have effectively ground several major economies to a halt. Almost every industry has been affected by the novel coronavirus outbreak, and that includes crypto.
In this article, we will discuss how the coronavirus pandemic is impacting crypto as an asset class and as an industry.
Conferences Are Going Virtual
Arguably, the first impact that coronavirus had on the digital asset industry was the cancellation of crypto conferences.
The Ethereum developer conference, EDCON, was one of the first to pull the plug, followed by Bitcoin 2020, and DC Blockchain Summit 2020. By early March, all conferences were either canceled, postponed, or moved online.
Consensus, the leading blockchain industry conferences organized by CoinDesk, will now be “a completely virtual experience.” Other conferences and meetups have followed suit and are now being held online via videoconference calls instead of in-person at convention centers.
Small Crypto Projects Will Struggle
The 2018 crypto winter resulted in the collapse of a large number of ICO-funded blockchain ventures and small altcoins projects. A similar scenario is poised to unfold in the coming months for small to mid-cap altcoins, should the altcoin market struggle to recover.
Most cryptocurrency projects fund their developments and marketing efforts through the sale of their token. That means that their digital token must carry enough value (against BTC, ETH, or fiat currency) for projects to maintain their required spending.
However, as a result of the recent crypto market crash, which hit (most) altcoins harder than bitcoin, it will most likely mean suppressed price levels for smaller projects that will struggle to find investors for their digital asset.
Lower token values will mean less capital to spend on development, marketing, and exchange listings. Without these investments, it will become more challenging to compete in a digital asset market that is growing increasingly more competitive.
Some Companies Will Fold, Some Will Shine
Blockchain and cryptocurrency companies that do not have enough cash or revenue streams to weather the upcoming expected economic decline will most likely have to close their doors. Should the current lockdown measures, which have effectively halted large parts of the global economy, continue for longer, it will be difficult for startups to survive.
Many VC-funded blockchain startups are not yet in a position to fund their operations with their revenues and, even fewer, are profitable enough to continue to function as they did before the coronavirus crisis.
Conversely, well-funded blockchain companies are poised to increase their market share and add new users as some competitors will be forced to scale back to survive. The reported acquisition of CoinMarketCap by industry heavyweight Binance suggests that large players are happy to expand and push forward despite the current economic uncertainty.
Stablecoins Are Moving Into the Limelight
As we have seen during past market corrections, crypto traders like to move their digital funds into stablecoins to withstand the volatility before they reenter the market. As a result, the market value and trading volumes have increased for stablecoins.
Tether USD (USDT), USD Coin (USDC), and Paxos Standard Token (PAX), Binance USD (BUSD), and TrueUSD (TUSD) have all moved up in the digital asset rankings in the past few weeks as more funds have flown into stable digital currencies.
Currently, stablecoins are effectively only being used by crypto traders to move in and out of risky digital assets. However, an increase in stablecoin adoption by cryptocurrency users could also result in an increase in the use of stablecoins in payments. This scenario, which has been predicted by many stablecoin advocates, could become a reality sooner than later as the world seems to be moving towards a cashless society faster than before due to the coronavirus.
Bitcoin Took a Hit But is Poised to Come Out Stronger
Finally, you can’t talk about crypto without mentioning bitcoin. After the World Health Organization (WHO) declared the COVID-19 outbreak a pandemic, bitcoin tanked in line with the stock market.
In March, the price of bitcoin (BTC) dropped by 30% in value, from $9,000 to $6,200. During “Black Thursday,” on March 12, the BTC/USD rate dropped to a 2020-low of $4,125.
However, bitcoin managed to recover, and despite its recent correlation with equities, is well-positioned to potentially outperform other major asset classes in the next 12 to 18 months.
Bitcoin is a hard asset akin to gold with hard-code monetary policy that cannot be altered by governments or central banks. Therefore, it is impossible to devalue bitcoin, in the way that governments are devaluing their currencies by printing money. As a result, bitcoin has the potential to position itself as a hedge against fiat currency devaluation as well as an economic depression.
Additionally, the Bitcoin halving is just around the corner. On May 13, the Bitcoin block reward will be halved from 12 BTC to 6.25 BTC per block. And historically, bitcoin has rallied in the 12 to 18 months following a block reward halving as a result of a decrease in supply met with an increase in demand.