Blockchain Technology

Second Pandemic Wave: Bitcoin Rally?

The current pandemic has become a defining moment in the course of our society, but the impact of COVID-19 can be seen through its effects on the economy and society in general. From the perspective of a Bitcoin (BTC) investor, there are many things to consider.

Coronavirus emergent patterns determine how the infection spreads and sets the society on a particular course into the future. The impact of the novel coronavirus on consumer society has been tremendous. The effect has mostly been seen as the closure of workplaces, resulting in people either working from home, getting laid off or in some cases, being furloughed.

Unemployment figures have set records in western countries, especially in the United States. The road to economic recovery is still unknown. The current situation seems to indicate that businesses need new types of fundraising in order to fully recover or to restructure.

The lag between infection cases and deaths is around two to three weeks: This means that whenever the epidemic resurfaces, according to data obtained from the first wave, this happens predictably, in risk groups and regionally.

Exposure to blockchain-based assets is concentrated among young male professionals aged around 30. If we observe new entrants in the blockchain asset classes among consumer segments, we may observe that the greatest numbers of new users have been coming geographically from countries where the local currency is experiencing high inflation, concentrating roughly in Africa and Latin America. Socio-economically, they are middle-class professionals. While most are Bitcoin maximalists, there has been an increasing interest in the altcoin markets.

Recently, a buying spree fuelled by videos shared on the social media app TikTok caused a significant price spike in the value of Dogecoin (DOGE). The buyers were almost exclusively teenagers and young adults who are current cryptocurrency holders. While Dogecoin has been known as an asset whose value is based entirely on its virality, the recent phenomenon suggests that there are plenty of new entrants in the broader cryptocurrency market. It should be noted that this Dogecoin pump took only hours to top out, compared to the several weeks the eight other times the coin had gained significant value. This signals an impulsive move.

Retail investors in the risk groups typically do not invest in Bitcoin or blockchain-based assets. Wealth owned by those in their 70s and above is typically in real estate, bonds and indices. The same investors, who are the most susceptible to contracting and dying of the novel coronavirus, are the most established in our society. Meanwhile, statistics show that the deaths are heavily concentrated among working-class individuals, ethnic minorities and those lacking access to quality health care. Residents of care homes have been particularly vulnerable.

This is significant because the statistics indicate that the majority of victims of the novel coronavirus are unlikely to hold significant wealth in either traditional or blockchain-based assets. Therefore, the impact of the coronavirus on cryptocurrency and blockchain-based asset markets may be quite negligible, while in traditional markets, the outbreak is likely to unlock assets typically held by the victims. Among elderly members of the working class, the majority of wealth is held in residential real estate and pension funds.

This shows that the coronavirus’s impact may make cheap real estate even cheaper, particularly in the countryside, despite people temporarily looking for relocation there.

The effect on Bitcoin in this respect would be practically nil.

Its influence on institutional money has been two-fold. On one hand, institutions have enjoyed unprecedented support from the government through bailing out their debt by buying equity-backed bonds, and on the other hand, funds such as Grayscale Bitcoin Trust have seen increased volumes.

Institutions are traditionally seen as swing traders; they bet on long-term market moves. Institutional interest in cryptocurrencies and blockchain-based assets as an asset class has been steadily growing with the number of investment instruments increasing over the past five years. Typically, institutions hedge into cryptocurrencies and blockchain-based assets with a narrow focus on a handful of tokens and sophisticated trading techniques, such as leveraged trading and options.

On the technical front, institutions have implemented blockchain technology to support their existing services.

This means that institutions see blockchain as a tool to facilitate lag and cryptocurrencies as a way to hedge their portfolios outside of traditional markets. Arguably, this renders the influence of institutions in regard to blockchain-based assets a stabilizing factor rather than a market mover.

Bitcoin fundamentals have shown signs of transitioning into the next growth cycle in the next few years. The halving has limited the supply and placed the asset on par with leading fiat currencies regarding inflation, at around 2% per annum.

The upcoming bull market will likely be driven by consumer demand. While retail investors are restructuring their personal portfolios in the world outside of cryptocurrencies, they are likely to become more interested in the asset class over time. The motivation in getting into the market is dominated by hedging against inflation and being exposed to assets that may be used across national borders.Smart money is invested early on in promising projects, whereas dumb money usually hitches a ride on an established trend near the top. The distinction, therefore, can be made through the amount of work required to do market research, as well as exposure to the creators. Smart money represents the early adopters. Recently, we’ve seen an explosion in decentralized finance, nonfungible tokens, and more traditional security and utility tokens. Main street brands, such as European football clubs have entered the market through their own tokens and platforms.

The broader cryptocurrency market is set for a Cambrian explosion of assets and a market comparable to the creation of the internet itself. As COVID-19 acts as a catalyst in the dismantling of old institutions and legacy financial systems, it will pave the way for cryptocurrency and tokens to take their place.