The cryptocurrency market has experienced a period of high volatility over Q1 2020 subsequent to the World Health Organization’s official announcement of COVID-19 as a pandemic. With supply chain disruption and workforce displacement causing havoc in traditional markets, how will Bitcoin and major cryptocurrencies be impacted?
The economic impact of the Coronavirus has seen governments around the world announce drastic fiscal policy changes in response to the pandemic — The US Federal Reserve, for example, has announced “unlimited” quantitative easing and reduced reserve requirement ratios to zero percent, threatening the long-term value of the US dollar and potentially contributing toward rapid inflation.
Amongst this economic chaos, cryptocurrency is rapidly claiming a strong position as a potential safe-haven asset despite a series of sell-offs. Here’s how the 2020 Coronavirus outbreak may affect cryptocurrency prices:
The ongoing Coronavirus quarantine and social distancing is forcing millions of workers around the world to stay at home, unable to earn regular income. Many cryptocurrency holders, from casual employees, to small business owners, to startup founders, are selling assets — including Bitcoin — to make ends meet during the quarantine period.
The announcement of large-scale quantitative easing in the United States, paired with the looming threat of global recession as global GDP output plummets, however, has many investors seeking a potential safe-haven asset to hedge against the possibility of a falling US dollar.
Bitcoin is a highly popular asset in countries experiencing monetary inflation — Bitcoin trading volume reached an all-time high in Venezuela during the height of the country’s 10 million percent Bolivar inflation in July 2019, for example.
Bitcoin’s heavily-anticipated halving is set to occur in May 2020, which will have a significant impact on the price of the asset. Bitcoin miners are currently rewarded with 12.5 BTC as a block reward, but this reward is set to change to 6.25 BTC when the halving occurs.
The two previous Bitcoin halvings in 2012 and 2016 saw the value of Bitcoin rise by 8 percent and 284 percent with a year of each, indicating that halving events are a strong long-term positive price signal.
The price of Bitcoin is closely linked to the amount of hashing power directed toward it by Bitcoin miners. If the price of Bitcoin falls, or rewards are lowered by the halving, it’s likely that the amount of hashpower directed toward the Bitcoin blockchain will fall.
Bitcoin miners generate profit by solving complex math with dedicated hardware that incurs a significant power cost. If the block reward is lowered due to the halving, miners receive only half the previous reward while needing to spend the same amount of electricity, and must therefore price the Bitcoin generated though mining higher — thereby putting positive price pressure on the asset itself.
The mining industry also relies heavily on the release of faster and more powerful Bitcoin mining hardware on a regular basis. Top mining hardware manufacturers are based in China, however, which has been heavily affected by the Coronavirus outbreak.
Top hardware companies such as Microbt, Canaan, Canaan, and Ebang have all announced that shipping of ASIC mining hardware from China will be delayed, which slows the distribution of in-demand hardware such as the Antminer S19.
With over 50 percent of all Bitcoin hashrate centralized within China, it’s possible that a long-term disruption of Bitcoin mining efforts could further affect Bitcoin prices. Coronavirus supply chain and workforce issues have already seen Bitcoin hashrates drop by 40 percent since mid-March 2020, making mining largely unprofitable due to increasing block difficulty.
Ultimately, an increase in block difficulty due to lower hashrate as a result of Coronavirus quarantine measures and supply chain disruption, paired with the impending halving, will force Bitcoin miners to at a loss — placing positive price pressure on Bitcoin as miners attempt to recoup losses.
The potential for a Coronavirus-induced global recession and the possibility that Federal Reserve action may negatively impact USD value, when combined with positive price pressure from miners, could place Bitcoin in a strong position in 2020 to recapture a significant amount of lost ground and offer concerned investors a concrete safe haven asset.
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