In the grand scheme of things, the global pandemic reignited confidence in cryptocurrencies. Access to the internet, free time, and the emergence of digital natives as an emerging population enabled cryptocurrencies to surface into the market. Gen Z and millennials, through their DIY mentality, gained an understanding of the perks of cryptocurrencies going into the Web 3.0 period.
Cryptocurrencies have fallen off the mainstream radar following the ICO mania in 2017 after Bitcoin reached $20,000. As altcoins and Bitcoin suffered significant losses as the market feared a growing bubble, the cryptocurrency market experienced a standstill period without substantial price movements between 2018 and 2020.
A Pandemic Overview
According to Forbes, the global pandemic brought the economy to a pause, as many people found refuge behind locked doors. Social media and other digital media have been known for playing a role in cryptocurrency price activity. However, Google search data shows no correlation between the start of the global pandemic and requests for Bitcoin. It indicates that Bitcoin and cryptocurrencies had gained prominence at the end of 2020, when the price of a Bitcoin started to progress towards its previous all-time high.
As highlighted in a Bloomberg article, the pandemic has driven the “monetary evolution” because it forced people to “risk” a digital transaction. With only a few daring to venture as early adopters amongst a collection of skeptics, humanity was forced to adapt 10 years’ worth of technological advancements in just under 10 months. To that end, the pandemic was a catalyst not for blockchain but rather for technological development. However, blockchain reserved its position as a safe haven from surveillance and centralized authority.
Data from Coinmetrics indicates trading volume increased at the beginning of 2020. Coincidentally, trade volume hasn’t dropped off amid the global pandemic, as DeFi became an underlying blockchain technological development. Institutional and corporate investors followed the emerging trend in cryptocurrencies as MicroStrategy announced over $1 Billion worth of Bitcoin purchases at the end of 2020. So why was everybody purchasing Bitcoin all of a sudden?
According to Hadar Y. Jabotinsky and Roee Sarel, cryptocurrencies’ ability to be traded from anywhere in the world suited the existing trading landscape. Additionally, government distrust and fear of inflation pushed investors to relocate their funds in a decentralized market to mitigate political risks which could affect their assets. Although researchers argue Bitcoin is not a safe haven and moves according to the S&P 500, fear of inflation has adjusted Bitcoin’s position in the market as it increased in rapport with other tradable assets. To that end, socio-political and technological forces impacted the cryptocurrency market.
On the Flipside
- 57% of consumers in 2020 were Gen Z or Millenials as they gained further knowledge into the affordances of cryptocurrencies.
- Knowledge and expansion of cryptocurrencies to the mass audience also bring forth concerns about scams.
- Blockchain development slowed during the pandemic as it restricted monetary resources in the early stages.
Crypto in the Post-Covid Era
As a medium of monetary exchange, Bitcoin is partly flawed. Its precedent of heightened volatility renders Bitcoin incapable of performing currency functions. Yet, investors have been driven by trusting factors such as JP Morgan reports and market sentiment to add Bitcoin to their balance sheet, similar to Tesla, Microstrategy, or Meitu.
The pandemic has accelerated the recognition of cryptocurrencies in the mass market. Even previous bitcoin skeptics have modified their tone towards Bitcoin, no longer claiming it is a Ponzi scheme. Not all, but some have taken that leap and acknowledged Bitcoin for its store of value.
Although Bitcoin has broken the stigma of “fairy dust” for some, it has come under scrutiny as it fails to resolve its volatility issues as it recently plunged by nearly 35% in the wake of regulatory news from China. Although the price of cryptocurrencies has increased beyond expectations, the pandemic has hindered some parts of the market, mainly blockchain development. Still, as Hedera Hashgraph has shown, blockchain can and is integrated at a governmental level to keep track of supply chain data.