At the beginning of 2020, many economists were optimistic and thought that global growth would go up.
However, the coronavirus pandemic has led to a massive economic shutdown around the world as governments issued stay-at-home orders.
It is now clear that global growth will not be going up this year. Instead, the world is looking at a massive recession.
How the Coronavirus Pandemic Affected Cryptocurrencies
The values of many investments and holdings have fallen dramatically. But the impact on individual assets vary. When looking at cryptocurrencies specifically, it’s clear that some are weathering the global economic downturn better than others.
Indeed Bitcoin futures have soared since the mid-March market meltdown and Bitcoin rose toward the $10k mark as it approached its halving. Volatile market conditions have sparked a surge of interest in trading. Brokers report that new customers have opened hundreds of thousands of new accounts.
Crypto assets followed the market plunge down, and like stocks, have rebounded considerably. Unlike the stocks of many companies, cryptocurrencies are not affected by corporate balance sheet problems, unmanageable debt, or liquidity issues. So crypto rebounds have been relatively unencumbered.
Bitcoin began 2020 down roughly 40% from its July 2019 peak. From the start of the year through mid-February, it rose 40% — likely due, at least in part, to the upcoming halving in May. When the coronavirus pandemic started, bitcoin lost about half its value over the course of a month.
Since then, bitcoin has regained most of its lost value from the recent decline, but it remains well below last year’s high and far from its all-time high in late 2017.
Some investors wonder whether bitcoin can continue its climb out of the coronavirus hole. After the halving technical analysis indicated resistance at the $10k mark and slowing momentum. But bullish investors argue that bitcoin provides an asset that can serve as a long-term store of value.
A Billionaire Buys Into Bitcoin Futures
As first reported by Bloomberg, billionaire hedge fund founder Paul Tudor Jones has recently invested over 1% of his assets in bitcoin futures and said that we could be watching the “birthing of a store of value.”
In a letter to investors, he warned of a pending “Great Monetary Inflation.” And he suggested bitcoin could play the same role that gold played in the 1970s, namely, a hedge against inflation.
Still, he made clear his investment is speculative. Bitcoin futures (BTCM20) on the Chicago Mercantile Exchange (CME) went up 5% on the news.
Ether is the second most valuable cryptocurrency in existence. The currency saw significant growth in price from the beginning of the year through late February. But when the coronavirus pandemic started, Ether was harder-hit than bitcoin.
Part of this was simply because Ether had risen so much before. bitcoin dropped much further relative to where it started the year. Beyond this, there’s speculation that Ethereum whales (top holders of this asset) played a major role in this fall as they dumped a large number of their holdings at the beginning of March.
Since then, Ether has slowly regained some of the ground it has lost. Nevertheless, it is still trading at prices significantly below those seen immediately prior to the pandemic as well as its peak last July.
Litecoin and Other Altcoins
In general, most of the major cryptocurrencies lost between 30-40% of their values when the coronavirus pandemic got underway. None of the major cryptocurrencies have regained their February highs. Some, like Dash and NEO, are recovering reasonably well. Others, like Litecoin and XRP, have barely made it back to their value at the start of the year.
However, there may be additional factors affecting the price of various altcoins that have little to do with the pandemic itself. For example, Litecoin, with its declining hash rate, is struggling to remain relevant.
XRP is under scrutiny while its issuer, Ripple, faces a lawsuit that the coin is an unregistered security. Last year Ripple was accused of price manipulation.
Trading Futures on Regulated Exchanges
And as we mentioned, Bitcoin has a wider acceptance than altcoins. One key indicator is that in the U.S. one can trade Bitcoin futures on the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE), both of which are regulated by the CFTC (Commodity Futures Trading Commission).
The CME and ICE contracts are cash-settled, which attracts an investor class that wants to avoid risks associated with unregulated exchanges.
Attracting Institutional Investors
Now Fidelity Investments released a recent survey indicating that 36% of institutional investors have part of their portfolio dedicated to digital assets.
This was an increase over previous years and across several measures, investment in crypto is up. Bitcoin was the preferred digital asset invested in, followed by Ethereum.
About its survey, Fidelity said it revealed “higher penetration with crypto hedge and venture funds, as expected, but also the financial advisor, high net worth individual and family office segments.”
Bitcoin continues to be seen as the elder statesmen and vanguard of cryptocurrencies, as evidenced by regulated futures trading and a growing base of institutional investors. But these institutional investors are wading into Ethereum and digital other assets as well.
This growing acceptance is good news for holders and traders of all cryptocurrencies.