Bitcoin, trading near $10,000 in mid-February has dropped below the $4,000 mark just one month on.
One of the most significant factors behind the ailing market stems from the fact that China is among the world’s top crypto investment hubs – possessing most of the crypto exchanges of the Asia-Pacific region. Considering the origins of Coronavirus, its outbreak has caused severe economic ramifications to China as a whole. As a result, business in both traditional and crypto markets is struggling.
Market jitters have been further compounded by COVID-19 being formally recognised as a pandemic by the World Health Organisation. The news sent Asian and European stock markets tumbling. Bitcoin and the wider world of cryptocurrencies have been caught up in the turmoil, but does Coronavirus mean for investors? Could there still be investment opportunities out there? Does the current state of the market offer the opportunity for some sound value investments?
Given the highly speculative nature of the biggest cryptocurrency players, it will be a matter of months before we’re likely to see much confidence in the market surrounding the likes of Bitcoin and Ethereum. Facing up to this reality, investors have been seeking solace in stablecoin markets until the signs of a bear market have been banished.
The dangers posed by Coronavirus
China is a major player when it comes to cryptocurrencies. 65% of current miners are based in China, and most of the largest manufacturers hail from the nation too. This points towards some severe long-term problems when it comes to production.
Coindesk reporter, David Pan, and DeFiner CEO, Jason Wu have forecast a bear market in the immediate future of both Bitcoin and cryptocurrencies alike.
In terms of hash demand, Bitmain, Canaan, MicroBT and InnoSilicon have all been reporting delays in production as a result of COVID-19. The pressure on the aforementioned organisations had already been increasing in the build-up to Bitcoin’s much anticipated halving event – reportedly due around May this year.
Furthermore, the most prominent crypto market in China is retail-based. Currencies like Bitcoin and Ethereum gives Chinese sellers the opportunity to trade with the world without governmental restrictions.
With these retailers closing their doors, coupled with the ever-increasing number of nations going into lockdown in order to limit the spread of Coronavirus, the practical application of these cryptocurrencies are severely limited.
The state of play
Bitcoin’s current state of play may make for bleak reading. With the Bitcoin worth presented at slightly under $5,200, the world’s favourite cryptocurrency is depicted in the image above to have fallen by 27% in the space of 24 hours.
The panic caused by Coronavirus and its implications has caused Bitcoin to fall almost 45% within a week, with other altcoins following suit. Bitcoin’s dominance remains at around 66%, with the cryptocurrency’s market cap standing slightly below $91 billion. Accordingly, around $60 billion has been offered since the week commencing March 9th 2020 as investors liquidate their crypto positions in a bit to mitigate their losses.
While uncertainty and panic has infiltrated the market, stablecoins have been identified as a place for investors to seek solace. In mid March, six stablecoins entered the top 50 crypto assets based on their respective capitalisation. Interest in Maker DAO’s flagship stablecoin, the DAI has even seen the organisation add a third asset to its DeFi decentralised platform in a bit to keep the currency floating above its dollar peg.
Reasons for optimism
Despite widespread fears, the Dollar-backed stablecoin market has shown some degree of solidity, with stablecoins like Tether (USDT), Paxos and Timvi (TMV) all seeing strong prices and trading volume in recent days. Notably, stablecoins have surpassed a total market capitalization of $6 billion in the wake of Coronavirus.
Interest in stablecoins has been steadily rising during the coronavirus outbreak due to their relative security based on the real-world assets that they’re pegged to.
Their stability has been a driving force in boosting investor confidence in these digital assets, and increasing numbers of traders are now looking to stablecoins as a method of storing their wealth as well as a useful method of payment outside of the troubled fiat currencies.
How to invest wisely
There’s a growing case to be made that the emerging bear market could make for ample grounds for value investments.
This means that investors could use the falling values of the likes of Bitcoin and Ethereum to make purchases as a way of speculating on an eventual return to form for the digital currencies.
This approach could be seen as a solid option if you’re of the belief that the falling values of Bitcoin and other altcoins is down, in most part, to market jitters and will return to its previous values once concerns over Coronavirus have eased.
However, the danger remains that, while there’s little reason to suggest that the cryptocurrency market won’t recover from this setback, its recovery will likely be linked to a return to productivity within China and its large number of miners. With it looking like a long recovery process for the nation, along with much of Europe and the USA declaring states of emergency, it could take some time before Bitcoin is back to pushing $10,000 in value – meaning that investors may need to look elsewhere to get the better of the bear market.
Herein lies the convenience of stablecoins. With their values pegged to real-world assets like the US Dollar and gold, there’s less chance of investors experiencing the sort of crippling drops that the rest of the crypto market is experiencing due to the levels of volatility associated with this significant event.
In times of unprecedented levels of uncertainty, it’s worth looking away from speculative markets and investing in some short-term stability. To invest wisely in this time of uncertainty, the safest bet available is for investors to hold assets in the stablecoins market. This allows them to remain connected to the crypto markets but secure themselves with pegged currencies. When there’s enough evidence that the bear market has been banished, there could be plenty of opportunities available as share prices recover.