The pandemic of 2020, COVID-19, has led to many changes in the world. When everything was stopped with a lockdown, people got stuck at home. Various activities they used to do before faded away, making room for the other ones. Those who didn’t lose their jobs began working remotely. We were forced to organize meetings online, instead of having live communication. Most of us started playing video games and came back to old hobbies we couldn’t find time to take before.
However, changes touched not only our personal lives but also the financial sphere. When a plethora of people around the world couldn’t work, they should have searched for a new way of making money to survive. Thus, the cryptocurrency market appeared as one of the most popular methods to get some income.
New highs in Bitcoin are making headlines every month, driving the price of other assets. So why has the price increased so dramatically in the middle of a pandemic? Let’s take a look at how COVID-19 affected the overall crypto market.
How did the Bitcoin price change due to the COVID-19?
Perhaps, no one could imagine that virtual currency known only in some countries among particular groups of people will gain popularity and spread all over the world. As a matter of fact, Bitcoin’s price climbed from $7000 in March 2020 to over $63,000 in April. It seems that this market has flourished since the pandemic started.
When the COVID-19 broke out, Bitcoin, the world’s first and leading cryptocurrency at CEX.IO, was available for $7,300. Comparatively, as of today, the same coin costs more than $46,800 – a drastic 640 percent increase. There have been similar (or even greater) increases in other leading cryptocurrencies (e.g., Ether). A theoretical standpoint, however, might not suggest an upward trend as several forces can drive demand up or down during a crisis.
What were the reasons for the BTC price growth?
Obviously, there were many reasons for Bitcoin to grow in price during the lockdown period.
Inflation
Amid the pandemic caused by COVID-19, the government had to step in with stimulus packages. Moreover, central banks print more money, thereby increasing inflation and reducing people’s purchasing power. As Forbes reports, the U.S. Federal Reserve “tolerates” inflation above its 2% target level, signaling a willingness to tolerate higher prices.
In light of the inflation threat, Bitcoin is, therefore, becoming more and more of a preferred store of value. As digital currencies got more prevalent, central banks will also use them. Namely, the governments of China and Russia have plans to implement central bank digital currencies (CBDCs).
Everything goes digital
As a result of COVID-19, several countries instituted lockdowns and curfews. Despite the negative effects of this move, it has led to a shift to the digital world. Remote work that was not so common before saw an extension during the pandemic, accelerating the usage of technologies.
In keeping with the growing ubiquity of digital technology, remote financial services have also grown in popularity. As a result, Bitcoin adoption has increased. Buying and selling Bitcoins is simple once you have a steady internet connection, which makes it an ideal option for international transactions.
Investor’s shelter
In the past, safe-haven assets like gold have been dominant. When the market performs poorly, the asset has the ability to hold its value, which means that it performs well in volatile markets. No matter how the market fluctuates, the asset value remains stable. Initial price drops were due to a pandemic, but they have since rallied to record highs. With the Coronavirus pandemic, Bitcoin has emerged as one of the safest investments for investors.
In the event of a crisis, investors who fear that the market will be affected by central banks or political actors may switch their investments to the decentralized crypto market. Consequently, since cryptocurrencies aren’t centralized but rather operate automatically, they can serve as a hedge against political risk, making them more attractive to investors.
The existing protocol limits the number of Bitcoins to 21 million. The current supply of Bitcoins is around 18.5 million. Additionally, Bitcoin’s block verification reward halves every four years. The reward is now 6.25 Bitcoins instead of 12.5 in previous years. A decrease in the reward results in a decrease in the supply of new coins. This creates a scarcity that is greater than precious metals.
Banks and cryptocurrency
In the wake of the Coronavirus, banks were closed. Traditional banks have been declining in popularity, so many people have turned to alternative financial institutions. For those who wish to move away from decentralized banking systems and for those underserved by banks, Bitcoin has proven to be a great option. For example, Bitcoin transactions do not require a bank account.
Bitcoin improvement
Companies dealing with Bitcoins have upgraded their operations technology due to increasing demand. A seamless and fast transaction system has been implemented. However, the mining methods for Bitcoins have been a primary concern. They were found to be associated with carbon emissions. There is, however, a movement toward green technologies like hydroelectricity and solar power.
Newbies in the trading world
It wasn’t only new HODLers who flooded the market but also new traders. People were forced to stay in the comfort of their homes or work from their sofas due to the pandemic. As commute times decreased and there were fewer activities to do in their free time, many people started spending more time online. Obviously, most of these people were looking for some sort of financial benefit. Hence online trading was an obvious choice. Although there were numerous people who were actually pioneers at the start of the pandemic, they were easily able to get started thanks to resources online, like educational academies for brokers, Udemy courses, and subreddits like Wall Street Bets.
Conclusion
It is evident that Bitcoin appreciation was accompanied by the COVID-19 pandemic. Despite the coronavirus pandemic, Bitcoin has not bowed to its effects, while other sectors have been badly affected. There is no sign that its growth will slow down any time soon. Even though investors are still concerned about volatility, traders are extremely optimistic. The price of the stock could reach $318,000 by December 2021, according to Citigroup.
