Effect of COVID-19 on Cryptocurrency
COVID-19 affects the cryptocurrency market just like it affects other markets. Recent research indicates that crypto markets took a U-turn in the midst of the coronavirus.
How the crisis affects cryptocurrencies
The state of emergency caused by the virus has shut down schools, businesses and borders in Europe, the US and other countries.
Researchers analyzed the market cap and trading volume of the top 100 cryptocurrencies during the period of Jan 1 to March 11. They found that both overall trading volume and market prices hiked initially as the number of identified COVID-19 cases increased. However, this positive correlation later reversed. Investors started to pull their cash out of cryptocurrencies and the market started to fall.
The initial positive correlation between the rise in market cap and volume in cryptocurrencies and the spreading virus may indicate that traders saw cryptocurrency as an effective safe-haven asset and reliable source of liquidity.
When did the trend reverse?
It seems that the trend started to reverse when investors responded to a temporary dip in the number of new cases. When the newly-identified infections started to slow down, the traders may have interpreted a decrease in the spread of the disease as a positive sign to reinvest in traditional assets. The decrease in the investment continued even after the number of new COVID-19 cases began to hike again.
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