Analyzing Covid And Its Impact On Cryptocurrency

The Covid-19 pandemic has affected people in the most adverse ways, many Indians have lost their jobs and continue to look for a part-time source of income. Keeping this aside, there has also been an emergence of various new jobs, mainly all based in the technology sector like traders, technical analysts, digital marketing experts, or crypto influencers. Bitcoin has surged during the Covid-19 pandemic, from around $7,000 on January 1, 2020, to around $17,000 on November 27, 2020, it is growing at a rapid speed.

This has also provided an opportunity to many crypto startups that have established to cater to the ever-increasing demand for Bitcoin and cryptocurrencies. There has been a steep rise in Bitcoin in the last two months – from $10,665 on September 25, 2020, to $19,028 on November 25, 2020, before falling to around $17,000 level.

Cryptocurrency market capitalization increased by Bitcoin’s growth recently crossed the $1 trillion mark. Out of which, Bitcoin, has been on a bull run for quite some time and is responsible for about 69% of the total market value. Just six months ago, the price of one Bitcoin was ~₹6,00,000, and currently, +3 Bitcoin is trading for ~₹25,00,000 which is approximately a 400% rise in the price.

Ether, the second-largest cryptocurrency in terms of market capitalization, crossed a new high of over ₹1,00,000 and hiked over 1,000% in value in one year. Similarly, many cryptocurrency prices have been on the rise, and investors are wondering why so, the main question that arises here is why people took refuge in Cryptocurrency during the pandemic.

REASONS WHY CRYPTOCURRENCY PRICES ARE ON A RISE

Cryptocurrencies, especially Bitcoin, are now being trusted as a safe-haven asset against market volatility and inflation. The current societal and economic climate also brings about a change in the situation for people to hold less cash and stay hedged against market swings.

Bitcoin Prices — Image Credits: Daily Express

ADOPTED BY VARIOUS GLOBAL COMPANIES (INSTITUTIONAL ADOPTION)

Recently, there has been a shift or trend where public companies are converting their cash treasuries into cryptocurrency. An American payments company, Square, bought $50 million worth of Bitcoins. Following this, Microstrategy- a publicly listed company in the US-converted $425 million worth of cash revenue into Bitcoin, considering it a better store of value. Many companies have since been following this trend. The confidence of corporate giants in cryptocurrencies has added more merit to it as a currency and value store.

CRYPTOCURRENCY AND PAYPAL

In 2020, the global digital payments company Paypal declared that it would be launching cryptocurrency buying and selling features on its platform. The launch involved four majorly traded currencies, namely Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Paypal has also announced plans of allowing transactions to be made utilizing cryptocurrencies.
Paypal is known to have 350 million users who will now be capable of adopting crypto as a method of payment.

EASY ACCESSIBILITY TO PEOPLE

Cryptocurrency is a digital currency that can be used as both – a store of value and a mode of exchange. While it has just started to gain attention as a valid payment method, it has established itself as a new asset class over the past decade. Even if people are unwilling to use it for transactions, many want to convert their cash into crypto because they believe that its deflationary nature makes it a better store of value.

IMPACT ON ECONOMY AND PUBLIC

Despite the several rumors of a potential ban on crypto in India, various cases could be considered by the policymakers who understand the true potential of leveraging crypto and its impact on India’s economy.
Keeping in mind that our nation’s success in the past three decades has come from ITeS-based solutions, if India is aiming to reach a $5 trillion economy, we should not ignore the $1.7 trillion market that exists for cryptocurrencies.

A forward-looking crypto policy can have a prominent impact on improving our overall financial infrastructure, help safeguard national security, deter financial frauds, strengthen our monetary policy, attract international capital, create more job opportunities, and retain our tech talent to fuel technological development, thereby driving the nation towards becoming a global powerhouse.

FUTURE OF CRYPTOCURRENCY IN INDIA

Cryptocurrency critics have mentioned that there is good reason to believe that governments around the world will eventually ban all cryptocurrencies. They argue that governments and their central banks will not permit the dilution of their monopoly power over money.
The Indian government has been giving conflicting or mixed signals on this matter. Finance Minister Nirmala Sitharaman in March said that there won’t be a total ban on the use of cryptocurrencies in the country. But the Centre soon plans to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which is said to contain provisions completely banning the use of all cryptocurrencies. The future of cryptocurrencies in India, thus, still hangs in the balance.

ELON MUSK’S INFLUENCE ON CRYPTOCURRENCY

Elon Musk has become a well-known name, known to any person remotely aware of cryptocurrency. With over 55 Million followers, the CEO of Tesla, SpaceX, and The Boring Company seems to be shaking the crypto world with his smart tweets. His relationship with cryptocurrencies has been a complex one. First, he loved and was inclined towards them, and then he endorsed them, now he thinks it’s terrible for the environment. Every time he tweets about cryptocurrencies, the market seems to react to them. Elon has the power to move the crypto markets with his tweets. However, a deeper look into the working of crypto as an investment suggests otherwise.

We could differentiate the price cycle of any asset into four phases – Accumulation, Markup, Distribution, and Markdown. This natural cycle that any investment goes through is vital for its growth and sustenance in the long run. Many technical analysts believe that Bitcoin was overbought at that point and needed a trigger to fall and correct itself. Elon Musk’s tweet just acted as a catalyst for the much-anticipated correction in the crypto market.

FLUCTUATING NUMBERS: SHOULD YOU ‘BUY THE DIP’ OR AVOID RISK?

With the recent uncertainty in the Crypto market, it has created chaos about if one should invest currently or not. It depends totally on whether you are ready to take the risk. In case you are looking for a safe, long-term investment option, cryptocurrency may not be your preferred choice of investment, given the high volatility and risk factor. But if you have a risk appetite and have the financial support to invest in cryptocurrencies, it could be right up your alley. The returns will be much higher than traditional investments if you stay on top of daily trends, but you should also be ready for frequent bouts of extreme volatility.

The key is to remain patient and not let go of your investments in case of rising uncertainty. People interested in crypto investments should also look at diversifying their portfolio and looking for long-term options like Ethereum, predicted to be the next big virtual coin in the market.

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