Despite the turmoil that has engulfed global economies, the cryptocurrency markets have been performing well as investors are increasingly turning to digital assets to hedge against recession and potential inflation.
In this article, we will take a deep-dive into the most important events of the crisis and how they have affected the general and crypto markets.
- The COVID-19 outbreak has disrupted the general market.
- As a result of the pandemic’s effects and the Russia Saudi Arabia oil price war, the stock market has crashed between late February and March.
- While Bitcoin was negatively affected by the crash, the cryptocurrency quickly recovered and reached new highs this year.
- AAB, AAX’s native exchange token, has also shown a great performance, generating an ROI of +40% in a month for investors.
- The crypto industry’s recent performance could be affected by various trends.
- These include increased institutional digital asset investments, US stimulus checks converted to cryptocurrency, Bitcoin halving, rising popularity of crypto among the citizens of developing and challenged nations, as well as a recent surge in blockchain jobs.
The Oil Price War and the Coronavirus-Fueled Stock Market Crash
Before we deep-dive into analyzing the cryptocurrency industry, let’s first take a look at the major events of the current crisis from an investor’s point of view.
The first thing we should look at is the Russia – Saudi Arabia oil price war.
In March 2020, an economic conflict started between the two nations after Russia refused to reduce its oil production to maintain moderate price levels for the commodity.
As a result of the ongoing oil price war, and worldwide lockdown measures, the commodity’s price took a sharp decline in March, with crude oil’s value falling from $46.12 to $30.70 in four days.
After realizing a 33.4% loss, oil prices continued to fall right to $17.95 before the commodity’s value turned negative ($-37.50) for a short period.
As of today, oil prices are in recovery, currently standing at $32.03, which is still down by nearly 50% from January 1.
In addition to the oil industry, the Russia – Saudi Arabi price war had a negative impact on the stock market as well as the world economy.
However, the oil price war was dwarfed by the impact of the COVID-19 outbreak, which has infected millions worldwide, and affected billions.
Until February 20, stocks were performing decently. By that date, the S&P 500 and the DOW Jones Industrial Average (DJI) had grown by 3.7% and 1.6% this year, respectively.
However, between February 20 and March 23, the S&P 500 lost 34.5%, while the DJI took a 37% hit within the same period.
After reaching their lows this year, both stock market indexes have seemingly recovered. However, the S&P 500 and the DJI are still down by 9.33% and 14.80% this year, and there is still much uncertainty in the market.
Rapid Bitcoin Price Recovery After Crash
While the correlation between Bitcoin and general market assets is minimal (and sometimes negative), the stock market crash between late February and March had a negative impact on the cryptocurrency’s price as well.
Between January 1 and February 20, Bitcoin’s price had increased from $7,170 to $9,620, realizing a growth of 34.2% in less than two months.
However, as stock market prices started to tumble, so did BTC.
After reaching $10,000 on February 23, Bitcoin’s price entered into a free fall, which did not stop until March 12 when the cryptocurrency reached its bottom price of $4,832.
After losing over half of its value in less than a month, Bitcoin entered into recovery, quickly turning the post-market crash period into a bull market.
In little over a month, BTC experienced a moderate value increase from $4,832 to $6,844 by April 20, realizing a growth of 41.6%.
Fueled by the expectations of Bitcoin halvening as well as the increased demand among investors to hedge against global market turmoil, BTC entered into a sharp uptrend between April 20 and May 7.
As a result, the cryptocurrency’s value increased to a little over $10,000 before entering into a correction, which resulted in a $1,300 plunge.
While the cryptocurrency’s price couldn’t get past $10,000 – after a short fall to $8,600 on May 11 –, the Bitcoin price is continuously heading into that direction, with the digital asset being traded at $9,800 at the time of writing this article.
In summary, despite that the COVID-19 outbreak, the cryptocurrency has still managed to generate a Return on Investment (ROI) of over 36% for investors this year.
Interestingly, Bitcoin even managed to generate nearly triple the gains of gold this year (13.41%), even though the precious metal is seen as the standard safe-haven asset by many investors.
AAB’s 40% ROI in One Month
We would also like to explore the performance of AAX’s native AAB token.
Since the token sale in April – after selling $10mil AAB to the public –, AAB has quickly entered into a significant uptrend.
Between April 13 and 17, AAB increased its price from its initial 1 USDT valuation to 1.08 USDT.
Before entering into a bull run, the cryptocurrency experienced a correction from 1.16 USDT to 1.08 USDT by April 27.
Between April 28 and 30, the AAB price surged from 1.08 USDT to 1.52 USDT, following its bull run up to 1.7 USDT on May 6 before entering into a correction.
After falling to 1.35 USDT, AAB’s price has been steadily increasing, with the token currently being traded at 1.40 USDT at the time of writing this article.
AAB’s 40% increase in a month indicates that people believe in AAX while placing their trust in regulated crypto exchange services (more on this later).
What’s happening? Are more people coming into crypto?
Surprisingly, institutional demand for crypto has risen rapidly amid the pandemic.
According to Grayscale – the largest digital asset manager in the industry –, the firm’s quarter-over-quarter inflows more than doubled in Q1 2020 to $503.7 million, crossing the $1 billion threshold ($1.07 billion) for the first time over 12 months.
What’s even more interesting is that Grayscale reports that 88% of the funds it raised in Q1 2020 came from institutional investors.
With the sudden spike in Bitcoin investments, the funds held ($2.2 billion) in the Grayscale Bitcoin Trust (GBTC) representing 1.7% of the circulating Bitcoin supply at the time the firm published its report.
According to Grayscale, many of the firm’s investors consider Bitcoin and cryptocurrencies as medium- to long-term investment opportunities as well as a “core component” of their investment portfolios.
The digital asset manager explained its rising inflows into cryptocurrency funds with the goals of investors to build more resilient portfolios to survive the pandemic’s negative effects.
Also, as a result of the unusual monetary policies of different nations, skeptical investors are increasingly turning more attention to crypto, the firm further explained.
Based on the Grayscale report’s findings, it’s interesting to see that the demand for crypto – an asset class that is often considered high-risk – is rising among institutional investors even in a “risk-free” market environment.
Some investors consider Bitcoin to be an alternative safe-haven asset with minimal (or negative) correlation with general market assets (e.g., stocks and bonds).
Because of the same reason – similarly to gold –, Bitcoin is expected to do well in times of global market turmoil and crises.
While crypto assets are becoming more popular among institutional investors, some managers prefer to consider safer alternatives to Bitcoin (e.g., cash) to survive the current crisis.
Therefore, when the crisis is over, and investors are increasingly exploring high-risk investments again, they may see Bitcoin as a good opportunity. As a result, institutional investment in Bitcoin could grow further after the market normalizes.
It’s crucial to mention that compliance with relevant regulation is considered as a key factor in attracting institutional investors into crypto.
An example of the significance of compliance for institutions is Grayscale, which became a Securities Exchange Commission (SEC) reporting company earlier this year, registering its shares according to the Securities Exchange Act of 1934.
While there is no evidence that there was a causal relationship between the increased inflows into Grayscale’s digital asset funds and the firm’s status change, the company’s SEC registration may have had a positive effect on its ability to gain more traction among the institutions in Q1.
Americans Invest Their Stimulus Checks In Crypto
An interesting event that may have positively affected crypto prices is related to the $1,200 stimulus checks that have been distributed to Americans per the CARES Act to help them cope with the COVID-19 crisis.
Soon after their stimulus checks have been paid, a large number of social media users reported that they either intended to or already used those funds to purchase crypto.
Based on the reports of multiple cryptocurrency exchanges, the social media posts about the stimulus check crypto investments were proved to be more than just chatter.
According to Coinbase CEO Brian Armstrong, the percentage of ACH buys and deposits that were exactly the same size as a $1,200 stimulus check has surged from the usual 0.05-0.1% to nearly 0.4%.
Binance later confirmed the same, reporting an increased number of deposits equaling $1,200 within the same period.
One of the possible reasons why Americans are increasingly using their stimulus checks to purchase cryptocurrencies is their dissatisfaction with the traditional banking system.
One day later, after news emerged about the rising stimulus-check crypto investments, CoinTelegraph reported that many of the relief payments may never reach their targets due to the possible intervention of banks.
While the CARES Act prohibits the US state or federal agencies from intercepting the payments (except for child support payments), lawmakers did not extend this protection to private debt collection.
As a result, financial institutions have the authority to legally intercept the stimulus payments of many Americans and use them to collect debts.
Due to this breach of faith in the traditional system, Americans increasingly converted their stimulus checks into cryptocurrencies that reside in decentralized networks where banks do not have the authority to intercept payments or collect debt.
Increasing Crypto Popularity Among Citizens of Developing Countries
There have also been signs of increased cryptocurrency activity among citizens of developing and emerging nations.
In early April, cybersecurity firm Qrator Labs reported that Russian citizens had been increasingly engaged with cryptocurrency exchanges amid the COVID-19 pandemic.
The cybersecurity company revealed that crypto exchange traffic grew by 5.56% in the last week of March, compared to the averages recorded in February.
By comparison, the nation’s foreign exchange (forex) trading activity increased by approximately 3% in the same period.
The rise in crypto trading activity is even higher for developing nations struggling with a high rate of inflation.
According to data published by Arcane Research, the weekly volume of BTC traded on Localbitcoins has surged by a whopping 1,028% from January 2018 to April 20 in Argentina as the South American nation is facing a possible default on $65 billion in foreign debt.
Based on Coin.Dance’s data, the same market sentiment could be seen in Chile, Colombia, Egypt, Kenya, Mexico, Morocco, South Africa, and Venezuela.
The reason why crypto trading is rising among the citizens of the nations mentioned above is presumably the increased (perceived) instability.
Blockchain Hiring Spree
As millions of people have lost their jobs as the direct result of the COVID-19 outbreak, it’s essential to take a look at what happened in the crypto industry in terms of human resources.
Interestingly, it seems that hiring was either unaffected or affected positively by the pandemic.
According to Indeed’s data, the share of job postings for crypto positions has increased by 4.77% between January 1 and April 24, 2020, with the largest surge being experienced in March (8.73%).
Remote-only cryptocurrency jobs have been on the increase as well. In March, the share of remote crypto job postings increased by 42.86%, while digital asset hiring represented a 40.3% increase for work-at-home positions in 2020 by late April.
Kraken reported that they originally planned to hire 250 new employees in 2020 but decided to increase that number by another 100 staffers, while Binance has expanded its team by 25% in the first quarter of 2020.