The new coronavirus is spreading in China and Asian countries, at the moment they have already infected 630 people. Several Chinese cities are quarantined. A possible epidemic may affect the value of various assets. For example, according to Goldman Sachs analysts, the cost of Brent crude oil will drop by almost $ 3 due to the cancellation of some flights at some airports.
Recently, there are more and more opinions that Bitcoin is beginning to fulfill the functions of a “protective asset.” This means that cryptocurrency is growing in value during global shocks. When it rose sharply at the beginning of the year, many attributed this to a military conflict between the US and Iran. Now that the threat of World War III has turned into a pandemic, we asked experts how this could affect the Bitcoin exchange rate.
The Scenario #1 – The Epidemic Affects Bitcoin
China is one of the leading players in the cryptocurrency market. The country has a strict administrative system that imperatively solves any problems. Coronavirus is not in a single province in China, it is a risk of economic security.
If the epidemic gets out of hand, the consequences could be the most serious, given the high level of corporate defaults. The regulator will have to introduce stringent measures, restrictions not only on the movement of people but also on capital.
Therefore, Bitcoin, which has gone from a repository on the site to mass technology of cross-border movement of capital, can receive hundreds of millions of new users who will simply be physically limited by transactions with fiat currencies. Not to mention the fact that mining farms can stop: the complexity of the network will drop, which will be used by other countries.
If the coronavirus epidemic forces China to introduce a state of emergency in the country, we can assume that there will be interruptions in gold mining (China is in first place in the world in gold mining – 426 tons per year), which will lead to higher prices for precious metals. For the same reason, the RMB rate will begin to weaken, which, like in the spring-summer of 2019, can lead to an increase in Bitcoin prices (then the correlation was quite high).
Disabling a large number of farms at the moment will lead to a decrease in the complexity of mining BTC, then a reduction in the cost of cryptocurrency will follow. Market participants can rush to crypto-exchanges to sell their coins since mining will become a much more profitable enterprise than a holding.
The Scenario #2 – The Crypto Market Won’t Feel the Panic Around
The decline in activity in China, in any case, will affect the overall trading volume and liquidity. There is a chance to see boring lateral dynamics, albeit with periodic bursts of volatility.
The global phenomena observed over the past few years have had a key impact on the main indices: oil prices, gold, stock quotes, and the rates of major reserve currencies. And only to a minimal extent did they affect Bitcoin or altcoins. It has been suggested more than once that, for example, BTC may well become a “protective asset,” but this also did not happen.
The connection between indices and quotations, real-world events, and the behavior of crypto investors, exists and can be observed through derivatives – Bitcoin futures. The prevailing positions on CME and CBOE are usually directly reflected in the value of bitcoin.
Overall, it is possible to suggest that the huge changes on the cryptocurrency market can occur once the epidemic will increase its scale. Currently, it is hard to support the opinion that Bitcoin price will react to China’s events significantly.
This article is intended as a news item to inform our readers of various events and developments that affect, or that might in the future affect, the value of the cryptocurrency described above. The information contained herein is not intended to provide, and it does not provide, sufficient information to form the basis for an investment decision, and you should not rely on this information for that purpose.