How Has the Coronavirus Pandemic Affected the Value of Cryptocurrencies?

How Has the Coronavirus Pandemic Affected the Value of Cryptocurrencies?

The pandemic of the COVID-19 virus, which has struck the whole world, hasn’t left global financial markets without consequences. For example, the New York Stock Exchange recorded a fall at the end of February when it became obvious that a pandemic was imminent and that its impact on the world economy couldn’t be avoided.

The Dow Jones marked down a decline of approximately 600 index points compared to the time before the accelerated spread of the virus. Recall that the Dow Jones index is based on the shares of the 30 largest companies in the US, trading on the stock exchange. Also, the forecasts for economic growth provided by the World Bank have changed, so that all projected growth rates for 2020 have been adjusted to lower.

The Decline Followed by a Quick Jump

In line with the mentioned trends in the financial markets, there has been a general decline in the value of cryptocurrencies. Bitcoin, as the dominant cryptocurrency, also recorded a significant decline in value against the USD. The price of Bitcoin fell from about $ 8,000 to below $ 5,000 in a single week in mid-March.

Interestingly, the price of Bitcoin had a marked increase from $ 5,000 to $ 6,000 after the Federal Reserve (de facto the US Federal Reserve) lowered interest rates to 0% to 0.25% and announced a direct injection of $ 700 billion into the US economy. The observed jump in Bitcoin supports the fact that it’s inextricably linked to the US dollar, about which there’s a lot of analysis.

Let us briefly remind you that Bitcoin can only be bought using the American national currency. If you buy Bitcoin using one of the FIAT currencies that isn’t the US dollar, you first convert it into USD, and only then you buy Bitcoin. Given that there are places to buy Bitcoin with a credit card, many people find this as a more convenient option to come into possession of this cryptocurrency.

However, the above-mentioned jump didn’t last long, so only in the next 24 hours,Bitcoin lost almost 10% of its value. Along with Bitcoin, the value of other cryptocurrencies (such as Ethereum, Ripple, Litecoin, and others) also fell. They lost between 5% and 12% of their value in the same period.

Will Cryptocurrencies Survive in Times of Crisis?

It’s known that one of the basic motives that drive stock exchanges is the possibility of making money. In that sense, more or less risky moves are undertaken that provide a smaller or larger profit, or a loss.

At a time like this, when a new virus emerged that caused a pandemic and when people’s fear for their own lives overcame the desire to make money, investors became very worried.

Although cryptocurrencies are formally independent of FIAT currencies, their interdependence becomes apparent at times like these. In fact, it would be more correct to say that there’s an interdependence between the state of the world economy and all other currencies.

If we look at things from a different angle, FIAT currencies are regulated by the home countries that issue them, while cryptocurrencies are self-regulating mechanisms that can’t be influenced by foreign interventions.

In fact, cryptocurrencies are directly exposed to market mechanisms and reflect the real state of the economy as much as possible. It’s for these reasons that the future of cryptocurrencies is quite certain and simply can’t be bypassed.

Whether the primacy will be taken over by Bitcoin or another cryptocurrency, or they will change places in the lead, is a matter exclusively of market movements. Cryptocurrencies in these times of crisis are proving not only their technological superiority but also their market superiority.

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