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Cryptocurrency in Focus: Outbreak Takes Toll on Bitcoin

But there may be side effects that help the cryptocurrency later on.

Bitcoin -- probably the most iconic name in cryptocurrencies -- is proving it's not immune to the coronavirus crisis. But it could end up benefiting as a delayed side effect of the outbreak if inflation and tracking measures, in China especially, turn people to cryptocurrencies.

Right now, the problem for Bitcoin is that China, the world's second-largest economy, is a large participant of Bitcoin mining. As the nation is deeply caught up in one of the worst pandemics in recent history, it's taking a toll on Bitcoin, because major mining equipment makers had to delay production due to government imposed quarantines and mining farms were shut down. This has no doubt affected the level of Developer Behavior of the cryptocurrency, as Chinese mining pools control most of the Bitcoin network due to the country’s extremely cheap electricity.

Further, a slight drop in User Activity can be attributed to Bitcoin remaining a highly speculative cryptocurrency, where current investors are easily spooked by an expected drop in price. The fact that the search term “bitcoin coronavirus” has recently overtaken “bitcoin halving” on Google Trends is telling of the volatility many people are expecting to see with the spread of the contamination. 

Created in 2008, Bitcoin (BTC) is considered the first cryptocurrency to be mined and traded on a decentralized peer-to-peer network. Rather than relying on a central authority to transact money, a decentralized network of nodes all verify transactions. The process of adding verified transactions to the public ledger and unlocking new bitcoins as rewards is called “mining,” and involves using computer power to solve complex mathematical puzzles, or hash functions.

But the Bitcoin blockchain suffers from important design limitations that make mining very expensive; slow down transaction throughput; and cause high volatility in price. Since the release of bitcoin, over 6,000 "altcoins" -- or alternative variants of bitcoin and other cryptocurrencies -- have been created so as to improve the platform’s scalability, security and speed. 

Losing Coin

Bitcoin’s FCAS has dropped 11-points (-1.23%) since mid-February, driven by an 18-point (-2.13%) decrease in Developer Behavior and 6-point (-0.62%) decline in User Activity. Market Maturity has also dropped 14-points (-1.68%) in the same timeframe.

Cryptocurrency of the Week: Bitcoin

Our Hot Take

While current investors might be turning away from Bitcoin, it seems likely that new buyers will start using the token as a safe haven. Right now in China, people are being quarantined based on surveillance of their spending, and punished for spreading news of the contamination. In this environment, and considering Bitcoin’s widespread use in the country, we can expect the token to gain traction as citizens aim to resist government control.

The Chinese central bank has also ramped up measures to sanitize old money, and plans to inject some $173.8 billion to calm people and markets as coronavirus fears worsen. The inflationary pressure this will cause is likely to drive demand for crypto assets globally, as other nations take similar measures to boost their economy. It will be interesting to see the level of demand Bitcoin will gain in comparison to other tokens. 

The FCAS Tracker provides institutional and sophisticated retail investors a top-down approach to tracking 500+ cryptocurrencies fundamentals. FCAS Tracker is currently free to a select group of new users as we continue to develop the product. Visit us here to gain access to Flipside Analytics.