Remember how cryptocurrency plunged in March 2020? Back then, it seemed to be a disaster, whereas today, it looks like we have forgotten that FUD (fear, uncertainty, and doubt). The collapse was caused by a crisis much broader than that related to cryptocurrency, and COVID-19 was the reason. What was happening to crypto in the last year and a half, and how did the pandemic affect that? Let’s try to sort this out.
The crisis and the opportunities it brought
The crypto market was affected by COVID along with the traditional investment markets. Their collapse was due to the liquidity crisis provoked by the investors. As ever before in history, they started panicking amid negative news surrounding the takeoff of the global pandemic. It burst out in late February 2020 and made the investors ‘panic sell’ all their liquid assets. This is what happened in the crypto market, too. Bitcoin’s price was at $9,000 at the beginning of March and plunged to $4,800 over 10 days. On March 12’s Black Thursday, Bitcoin lost almost half of its price.
The first cryptocurrency was often dubbed as the digital gold as for many, it was a store of value and a safe haven asset. As the crisis began, many started to sell it, incurring the massive drop of all cryptocurrencies. But again, as it has always been, some investors were ready to try buying the dip to profit from the situation. And by the summer, the market started to recover. Bitcoin was also appreciating rapidly, and the demand in it as in the digital gold rose. In March 2020, actual gold also tumbled, but then reached the all-time high in August:
By August, BItcoin also returned to the pre-COVID price and kept on growing.
Summer 2020 and the new bull run
Same as the other markets, crypto plunged in early 2020, but then started to perform better than stock and commodity markets. By August 2020, gold gained 11% since the start of the year, whereas Bitcoin grew by 30%. Ethereum showed an over 100% surge. DeFi also boomed from $1 billion in total value locked in February to $4B in August. By 2021, DeFi will grow tenfold from early 2020.
In late 2020, the largest-ever crypto bull run took off. It was explained by the influx of institutional investors seeking ways to protect from inflation and get profits while traditional markets’ revenue dumped. Many were talking back then that the economy is cyclic, and the new speculative markets such as cryptocurrency are always more volatile and show greater incomes than the traditional investment tools — but only in the crisis period. When the turmoil ends, cryptocurrency would lose a part of its magical attraction, and conventional finance will be again sought-after.
And this happens now. The global economy is recovering after the crisis, and the savage crypto rally that we faced from October 2020 to April 2021 is suspended. Is it the bubble that has burst, the beginning of a new long bear market, or just a temporary correction — we don’t know. But while crypto was booming, many new people learned about it, which led us to greater adoption. Let’s look at the new BTC wallets number at blockchain.com: during the crisis, it continued growing, and when Bitcoin started mooning in October, — guess what! — the number of wallets started increasing even more rapidly.
It was in early 2019 when half of all institutional investors were eyeing the addition of cryptocurrency into their portfolios. And amid the pandemic, such giants as Microstrategy and Tesla announced investing millions in Bitcoin. The new BTC rally was a lot due to this factor. Note this: only a few months after Black Thursday, we saw the interest of institutional investors in Bitcoin — isn’t this a sign of increased trust in cryptocurrency?
Healthy aspects of the turmoil
The reason why investors are going into crypto hasn’t changed across the pandemic. It’s the diversification of portfolio and protection against inflation, which cryptocurrency never ceased to deliver.
Digital coins started their bull run amid the coronacrisis — the correlation with the traditional markets decreased. When the turmoil is ending, the volatility of cryptocurrency lowers. And this is good for the industry: price swings are one of the factors that repel many investors.
And finally, any turmoil kills poorly made projects that can’t be managed in hard times. It leaves space for new promising ventures.
Overcoming the pandemic
2020 was the first time when cryptocurrency became part of a global crisis. Bitcoin and other coins plunged together with gold and other traditional investment tools. But thereafter, the cryptocurrency recovered faster than the other markets and started to moon, the number of Bitcoin users rose, and many institutional investors embraced Bitcoin. We don’t know where the current market situation will bring us, but unlike in 2020, it’s tied to the COVID-19 to a smaller extent.