The last couple of days have rained fire over the financial market, thus inevitably affecting the cryptocurrency industry as well. In less than two weeks, Bitcoin’s price has lost $3,000-worth of value, thus dropping from $8,000 to around $5,100 at press time.
This sudden drop, fuelled by the COVID19 pandemic, has led to intense panic selling. Thus, market analysts are now sharing their predictions over the future of bitcoin, and the digital currency market as a whole.
Despite the large number of traders who have decided to exit the crypto market, in order to gain access to increased liquidity, numerous investors, technical analysts and financial experts believe that the future of cryptocurrencies may, in fact, be further strengthened by the recent global events. There are several key reasons supporting this belief.
Covid’s financial impact
Firstly, the COVID19 outbreak has thought us a valuable lesson – the traditional financial market has potential for significant volatility. In other words, it is not a safe haven for asset storage. Better said, volatility is an inherent part of the financial market, and is bound to manifest itself in the case of all assets, rather than cryptocurrencies exclusively.
However, centralized control over traditional financial instruments showcases that decision-makers can operate significant changes within the market, thus affecting all players. For instance, in hopes of protecting the economy, the U.S. Federal Reserve has cut interest rates, while creating a financial stimulus of $1 trillion. Similarly, banks throughout the world have postponed credit payments, whereas governments have printed money to finance disaster relief operations. These are good measures in times of crisis, yet one could argue that this money came out of thin air, thus highlighting the fact that money as itself is a financial construct, with a determinable valuable that is prone to the influence of decision-makers. Consequently, analysts believe that long-term inflation values will soar, thus affecting millions of people and their purchase power.
Understanding the value drop
On the other hand, cryptocurrencies cannot be affected by such decisions. Their values remain tied to market demand. In this case, why has the BTC value dropped? Market analysis has determined that cryptocurrencies are dealing with an identity crisis, since there are three types of users: those who trade or invest for the purpose of earning a profit, those who rely on crypto for safe asset storage, and those who utilize cryptocurrencies as an actual payment method.
In other words, the COVID pandemic has eliminated numerous people who find themselves in the first two categories. As such, profit-centred investors are transforming their assets back into fiat, for the sake of liquidity. On the other hand, long-term investors and those who regard cryptocurrencies as actual payment methods, have no interest in exchanging their coin – on the contrary.
From a long-term standpoint, cryptocurrency ownership may further solidify as the world’s traditional financial system is affected by the pandemic. Based on this, high value crypto predictions continue to stand, despite the recent value drop.