Widespread panic of the coronavirus pandemic has wracked the cryptocurrency market. Bitcoin has experienced its worst crash since 2013 and is no longer being touted as a safe haven asset during times of global uncertainty. Ethereum, Litecoin, XRP and other altcoins have also shed all the gains they acquired in 2020. But is there any reprieve in sight for the short term?
All over the world, fears about the coronavirus pandemic have brought financial markets to their knees and even the cryptocurrency market, which has often been hailed as a market of uncorrelated assets were not spared the bloodbath.
Early on March 13, the price of Bitcoin briefly sank below $4,000, its lowest since the 2018 crypto winter, before bouncing back to between $5,300 and $5,500 in an hour’s trading. At the time of writing, BTC is exchanging hands between the $5200 and $5400 price levels.
Possible Reasons for the Crash
There have been speculations that the price crash and succeeding rebound was due to crypto derivatives trading platform Bitmex going offline, though it is not yet clear whether this is related. Virtually no one foresaw the massive sell-off, especially since Bitcoin’s fundamentals have been growing in recent times. However, at this point, it is important to take into account that this is the first time the entire crypto market has ever faced a global financial meltdown, one fueled by a global pandemic no less.
The crash of stock markets, including the selloff that has plagued the almighty S&P 500, essentially ignited a sequence of events that forced investors to dump their crypto assets. Bears are ruling the day across global markets and this is the first time since 1987 that market circuit breakers have had to be triggered in a single week.
It’s not hard to see why. Common sense dictates that as panic continues to spread all over the world, the average joe will be looking to be as liquid as possible. Panic buying has started to set in across several countries and there’s no telling what else will follow so essentially, the focus is on having access to as much cash as possible. This means lots of people will look to sell their assets to have more cash in hand, which in turn kills buying momentum, albeit for the time being.
What about the Rest of the Crypto Space?
Other crypto assets have echoed Bitcoin’s free fall with Ethereum posting prices of $ 109 – $120 price levels, Bitcoin Cash at $160 – $168, while XRP is currently at the 14 to 16 cents price level. Virtually all small-capitalization altcoins, such as AE, MKR, IOST, BSV, NANO, ONT, MATIC, BNB and STEEM also suffered steep declines, some losing more than 50% of their market values.
Is there Hope for a Short Term Recovery?
Despite a sea of red in the crypto market, fundamentals are still growing strong, especially with the U.S. Federal Reserve looking to pump money into the U.S. economy, which coincides with the Bitcoin Halving. Other central banks are also following suit. Theoretically, this would mean more cash to spend and an even more restricted supply of Bitcoin.
However, until the coronavirus pandemic has been controlled, everything remains speculative at this stage.