The Crypto Industry Shows Great Strengths in The Face of The Shrinking Global Economy

The world is currently trying to come up with effective ways to reduce the spread and eventually eradicate the Covid-19 disease. Amid the elusiveness of this task, the global economy has taken a nosedive with investors and businesses opting for the exit door, in what has marked an unprecedented sell-off of assets. And while a majority of crypto optimists had hoped that digital assets would withstand this economic strain, the crypto market has shown unexpected correlation to traditional markets, which is a disservice to the “bitcoin is a refuge” narrative.

In light of the many events that have been recorded in the traditional and crypto business landscape since crypto prices slumped, I have decided to create a commentary on the present state of the digital asset in an increasingly frustrating global economy.

There Was No Way Crypto Could Have Survived the Onslaught

In hindsight, it is glaring that there are no safe havens in the ongoing economic turmoil fueled by the unrelenting spread of the Coronavirus – in what is being termed as one of the latest threats to the very existence of humanity. Businesses are closing down, markets are registering historic price slumps, governments are dishing out initiatives to protect their economy from free fall, and humanity is being advised to sever social ties. All of these developments trailing the Covid-19 pandemonium have forced investors to convert their assets to cash.

Needless to say, this panic-influenced demand for liquid cash has had a devastating effect on crypto prices with bitcoin recording a 50% price downturn in just a week. Hence, there is no need to debate bitcoin’s inability to negate the effects of the economic crisis, considering that there is no practical way any asset market would have survived the global demand for liquidity. Instead, it is more productive to visualize the long-term result of the current coronavirus hysteria on the crypto space.

What Is the Long-Term Outlook of Crypto Amid the Intensified Fight Against Covid-19?

It is difficult to pinpoint how the crypto market will rebound once we eliminate Coronavirus. Likewise, there are no valid projections on how long it will take to create a vaccine against the virus. Note that President Donald Trump of the US announced that the government’s issued directives against the spread of the Coronavirus might last until August. In essence, the US, which is the largest economy in the world, might be on lockdown for several months. The same applies to major economies, which have felt the full brunt of the Covid-19 pandemic.

More devastating is the fact that these nations, including China, South Korea, the US, the UK, and Europe at large, house budding crypto communities. As such, there is no doubt that the restrictions will affect the crypto space in one way or the other. How much will the increasingly proscribed precautionary directives affect the crypto landscape?

For one, we already see how the ban on social gatherings has stalled the once buzzing crypto conference sector. In other words, major crypto meetups have already been canceled due to the escalation of cases of people with the Covid-19 disease. While the effect of this development is not all that glaring due to the virtual nature of the crypto economy, it is important to note that conferences are integral to networking and the growth of the crypto industry. These meetups are means by which crypto startups and developers share insights, network, and introduce new projects. Simply put, the crypto space, like every other industry, relies on conferences to promote collaborations that are vital to the development of crypto technology. Hence, it is safe to say that restrictions in cities, which host crypto events, put crypto startups at a disadvantage.

Another consequence of the spread of the Covid-19 and its aftereffect on the price trend of the crypto market was pointed out by Michael Novogratz in an interview with Anthony Pompliano. Novogratz stressed the apparent loss in confidence in bitcoin’s capacity as a store of value, which is the major selling point of the digital asset. In the interview, Novogratz explained:

“As far as crypto is concerned, this probably sets the story, the narrative, of new adoption in bitcoin as a store of value or in the other coins as part of the future of building a decentralized internet. It sets it back 12-18 months… we’re gonna have to get through this and then you have to rebuild confidence.”

Bitcoin Will Thrive Because Its Value Lies Beyond Its Safe-Haven Status

Truth be told, the price slump might have punctured Bitcoin’s viability as a safe haven. However, there is more to bitcoin and crypto than its store of value feature. We as crypto analysts and experts run the risk of fixating on facts that have no integral bearing on the prospect of cryptocurrencies. Bitcoin’s primary use case is payment. This narrative is what we should push because it is the only one with an element of sustainability. You will agree that the main goal is to have crypto as the de facto currencies in the coming future. Regardless of how much bitcoin’s store of value has driven crypto adoption, it is, however, certain that it is becoming ineffective.

Likewise, reports show that the crash of crypto prices has not ruined people’s appetite for digital assets. On the contrary, traders/investors are using this opportunity to buy more crypto in the hope that prices will surge in the long run. According to a report published on Coindesk on March 13, small scale traders in the Middle East have taken to p2p trading networks to buy bitcoin as the demand for the digital asset in this region has risen sharply. It seems that these people never doubted the viability of bitcoin, and they will continue to retain this mindset as long as the digital asset remains independent of government and institution oversight.

More Reasons to Believe That the Crypto Industry Will Continue to Thrive

It comes as no surprise that even the most avid supporters of the concept of cryptocurrency have begun to doubt crypto’s capacity to retain its value amid the current global economic crisis. One such individual is Peter Brandt, who previously projected a $50,000 valuation for bitcoin. Brandt recently asserted that he expects the price of bitcoin to drop below the $1,000 price mark. When asked why he thought this was inevitable, Brandt went as far as to state that the drastic price downturn had spurred him to set his expectation to as low as zero. Peter Brandt tweeted:

“All along I have stated my belief that there was a 50% chance BTC was going to $100,000 and a 50% chance it would go to $0, or literally zero. Once we broke through 7500 I place my bets on zero.”

Nevertheless, just as some have given up on crypto, others have shown commendable effort to continue to believe in the crypto movement. A development highlighting this notion emerged recently when reports documented how Bakkt raised $300 million in its series B financing round. The participants in this fundraising round included Microsoft’s venture division, Intercontinental Exchange, and Boston Consulting Group. News like this proves that crypto remains attractive to investors, and it will take more than price volatility to discourage the influx of cash into the industry.

Crypto Firms Remain Focused

Coinbase announced on March 17 that its card users can now make crypto-backed payments with Google Pay wallets. According to the publication, the integration of Coinbase Card into the Google Pay infrastructure provides a fast and secure way for customers to use their android devices to make crypto-enabled payments. The document reads:

“Google Pay gives Coinbase Card customers a fast, secure way to pay using their smartphones, smartwatches, and other Google Pay-enabled devices. With Google Pay, Android users can pay for everything from daily travel to end-of-year getaways using their crypto in the safest possible way. From today, Coinbase Card payments using Google Pay are available to customers in the United Kingdom, Republic of Ireland, Belgium, Finland, France, Italy, Slovakia, Spain, Croatia, Czech Republic, Poland, Denmark, Norway, and Sweden. We are working to expand to other European countries later this year.”

Furthermore, Opera revealed that it has partnered with Wyre, a payment firm, to allow its US users to purchase crypto via Apple Pay. A spokesperson told The Block:

“Users can purchase as little as $1 worth of crypto, and there is a maximum daily limit of $250… As our browser-based wallet is focused around the usage of cryptocurrencies on the web and using dApps [decentralized applications], we expect the vast majority of transactions will not hit that limit.”

The same optimism shown by Opera has spurred BlockFi to raise its interest rates even in the face of looming crypto price downswings. According to reports, BlockFi has increased the annual percentage yield for clients who deposit between 0-5 BTC to 6%. Also, those with 500ETH deposits are eligible to earn 4.5% APY. Zac Prince, CEO of BlockFi, explained that the company had processed record-breaking volumes of deposits and withdrawals. Therefore, it has maintained perfect performance regardless of the market downturn. He explained:

“Our balance sheet is stronger than ever and shifts in the institutional lending markets have created opportunities that expand our margin… As the global economy weathers a number of headwinds, including the coronavirus pandemic, rest assured that at BlockFi we will remain a stable source of liquidity, while continuing to provide best-in-class wealth management solutions for our clients and the broader cryptocurrency market.”

Do We Need A Circuit Breaker in The Crypto Market?

Away from all of the instances that the crypto industry showed that it is resilient enough to withstand the global economic crisis, I can’t help but delve into a truly divisive topic. This conversation revolves around the possibility of introducing the concept of circuit breakers into the crypto market. Some believe that it is necessary to install kill switches to lessen the effects of massive sell-off in traditional markets on the prices of cryptocurrencies. Those who agree with this sentiment point to the availability of circuit breakers in the stock market and how it helped avoid a free fall.

On March 9, the New York Stock Exchange initiated a circuit breaker that suspended trades for 15 minutes as a result of the 7% fall of the S&P 500 Index. This line of action was implemented to prevent further market slides. For supporters of this initiative, circuit breakers create an avenue for crypto traders to take a breather, amidst unrelenting price downswings as witnessed recently. Suspending trading will help traders think through their next move and reach decisions not borne out of panic.

On the other hand, crypto participants who do not support this sentiment argue that the introduction of circuit breakers will negate the decentralization narrative of the digital asset market. Changpeng Zhao, CEO of Binance, reiterated this argument when he tweeted:

“Circuit breakers can only be used on a fully monopolistic exchange. Free market doesn’t work that way. #btc is traded on many exchanges.”

Also supporting this view is Larry Tab, Chairman at Tabb Group. He told Coindesk in a recent interview that setting up circuit breakers in the crypto market “would be hard given the heterogeneous nature of the crypto market.” He added:

“There isn’t one regulator (many aren’t regulated at all), there isn’t one protocol, nor one data consolidated data feed. So even if you wanted to implement one – how would you do it? What if exchange X tripped a breaker, how would Exchange A know and why would they stop trading? In fact, if X were to shut down, it would be in A’s best interest to stay open as the trading from X may migrate to A.”

The circuit breaker argument intensified when the CEO of Alameda Research, Sam Bankman-Fried alleged that Bitmex had gone offline in the heat of unrelenting liquidation of cryptocurrencies just to stop the total collapse of the bitcoin market. In response to this allegation, Bitmex denied a preconceived attempt to discourage the sell-off of bitcoin by making its services unavailable. The exchange tweeted:

“There is no conceivable reason why a platform like BitMEX – which has operated for over 5 years and counting – would lower itself to the degree you proposed to avoid a situation for which it is already prepared.”

Irrespective of the back and forth, I believe that there is no way a concept like a circuit breaker will fit into the crypto narrative.