March 2020 Crypto Update
Updated: 2 days ago
Bitcoin prices dropped significantly throughout the month of March as fears over the coronavirus spread across the globe. The efforts of political leaders to slow the spread of COVID-19 did little to calm stock markets, and cryptocurrency suffered from the impact as well. While many traders are cashing out in an effort to gain liquidity, some investors view the record low in cryptocurrency as an opportunity. Keep reading for an update on cryptocurrency for March of 2020.
COVID-19 Leads to Stock Market Troubles
March has seen a fragile economy and unprecedented drops due to concerns over the novel coronavirus, or COVID-19. The pandemic saw a drop in the stock market by 20% in 15 trading days, a much faster drop than the stock market crash in 1929. The stock market crash currently unfolding is causing a ripple effect and damaging other asset classes in its wake. Hundreds of thousands of people are now infected with the illness and thousands have died from it, leading to intense disruptions for companies around the world.
As world leaders restricted travel between countries, global stock markets reacted. Efforts to contain the virus and slow the spread of infection have done little to assuage the fears of investors, and stock performance quickly reached the lows of the 2008 financial crisis. Even gold, which is usually considered safe during times of turmoil, is being dumped as traders and investors seek to find liquidity anywhere they can.
The Search for Liquidity
When the stock market crashes, it sets off a cycle that is difficult to halt. When traders are overleveraged, they sell their portfolio assets in an effort to meet margin calls. This causes an increase in selling pressure and halts the momentum for buying. When the buying momentum is stopped, pressure to sell increases even more, and the cycle continues. There is a struggle to trade as liquidity in the market dries up. Traders are selling gold and other assets to fund their margin calls.
Unfortunately, Bitcoin has seen the same plunge as stocks during coronavirus concerns. Instead of being a digital haven, as was predicted by some, Bitcoin is performing as a risk-on asset. Typically, Bitcoin does not correlate with stocks or move in the same direction as gold. However, it is not attracting bids during this volatile time. Investors are not willing to take the risk of cryptocurrency.
Cryptocurrency Takes a Dip
Early in March, Bitcoin dropped to below $8,000. By the middle of March, Bitcoin had dropped below $4,000. This plunge proved that cryptocurrency is not outside of the influence of the traditional financial markets. Bitcoin remains the largest form of cryptocurrency, and it saw a 40% drop within a 24-hour period. While Bitcoin is the most popular digital currency traded on the web, it is not the only one feeling the impact of the coronavirus and stock market plunge. Ripple, Ethereum, and Litecoin are also seeing downturns during this time.
Cryptocurrencies do not require banks and tend not to follow after the traditional financial system. However, they are vulnerable when it comes to shifts in the stock market. Investors are selling out of Bitcoin in an effort to gain liquidity as concern grows for the spread of coronavirus. Gold or cash are still seen as safer assets while Bitcoin and cryptocurrencies are more speculative. Some investors are also looking to free up their cash so they can invest when stocks begin to improve.
A Glimmer of Hope
Not all analysts are concerned about the safety of Bitcoin and cryptocurrencies though. “Whales,” or people with a large amount of cryptocurrency, are able to directly impact supply and demand. These people tend to be more emotional and speculative. Daniel Wolfford, former head of cybersecurity for Blockchains LLC, told Newsweek that the websites that trade cryptocurrencies are also partly to blame. Buying and selling generate fees for these sites, and exchanges can cause fake volumes.
While some investors choose to cut their losses when it comes to cryptocurrencies, others consider a price drop to be a positive. Some traders or investors may prefer to buy when cryptocurrency is cheaper, viewing the drop as something closer to a retail sale. They buy low and wait for the value to go back up after this volatile period is calmed.
Overall, the newness of Bitcoin and other cryptocurrencies is thought to be their Achilles’ heel. During the coronavirus pandemic, cryptocurrency has not stood the test as a digital safe haven. However, that is not to say it would behave this way again in the future. There is a possibility for Bitcoin or other cryptocurrencies to become a safe haven in the future when people better understand it. The value of Bitcoin is constantly in flux, and cryptocurrencies have seen major upswings and downturns in recent years. This constant state of uncertainty causes investors to shy away from cryptocurrency, especially during times of turmoil.
Outlook for the Crypto Market
By the end of March, the price of Bitcoin had risen to almost $7,000. While this is a far cry from the major boom that increased the value of Bitcoin to nearly $20,000 back in 2017, it is closer to the value of Bitcoin just a couple of months ago. Most cryptocurrencies, including Ethereum and Ripple, have been negatively affected by the fear of the spread of coronavirus and stock market drops. Ultimately, it is unclear how cryptocurrency will behave as the virus continues to spread. A typically volatile currency has been thrown into a state of turmoil, and only time will tell how cryptocurrency survives this uncertainty.