The news of the COVID-19 pandemic sent shockwaves across all global financial markets, generating the fastest and most dramatic fall since the 1920s. The travel restrictions and lockdown policies that followed heavily impacted the hospitality and tourism sectors, which would still take some time to recover. That also caused a plunge in the oil prices, fuelling the already raging Saudi Arabia-Russia oil price wars. Nevertheless, the following are some of the most significant effects of the Coronavirus pandemic on bitcoin.
Sudden Contraction of Bitcoin Prices and Market
The uncertainties of the Coronavirus pandemic caused widespread panic across global financial markets, characterized by liquidity and economic crises. Many investors ran for the exits, quickly converting their assets into cash to protect existing reserves. That resulted in the rapid contraction of the equities market and the collapse of bitcoin prices. For example, the bitcoin price dropped below $4,000 in March 2020, indicating a decrease of almost a half from the previous month. Meanwhile, the US S&P Index also experienced a sharp decline around the same time.
Increased Need for Bitcoin and other Digital Financial Instruments
Despite the sharp contraction of the bitcoin prices and cryptocurrency market in March 2020, the recovery has been quick and robust. The decline was short-lived, and bitcoin’s popularity has continued to soar ever since, reaching its highest all-time price of $60,000 in April 2021. Bitcoin had demonstrated a stellar performance at a time when global financial assets were facing turmoil. Countries like China that have shared mixed feelings about cryptocurrencies declared bitcoin as the number one asset.
Despite a few price swings, the current bitcoin price is sufficient proof of its steady rise since the lowest decline in March. That trend has sparked increased interest in bitcoin and other cryptocurrencies across the globe. Bitcoin is swiftly gaining recognition as a haven and intelligent investment, almost similar to precious metals like gold. The anxieties of the Coronavirus pandemic have prompted traditional financial institutions, businesses, and individuals to widen their digital economic systems and reserves.
The success of bitcoin amidst widespread financial market uncertainties has heightened the need for technology-driven and remote financial services worldwide. Multiple studies indicate bitcoin is effectively fulfilling that need, and the COVID-19 pandemic has accelerated it further. Many financial institutions are rapidly rolling out cryptocurrency-related services, including bitcoin deposits, withdrawals, and money transfers through digital wallets.
Leading payment services providers, such as PayPal, multi-national corporations, and even medium-sized local retail stores, have adopted bitcoin as a means of payment. That means consumers can now use bitcoin to acquire virtual assets and conduct other business transactions online worldwide.
Bitcoin Regulatory Frameworks
The outstanding performance of bitcoin during the COVID-19 pandemic has proven that cryptocurrencies could significantly alter the entire global financial landscape. That has convinced various governments to take decisive actions towards creating rigid regulatory frameworks for Bitcoin, other cryptocurrencies, and the crypto market.
As bitcoin lifestyle stats, a few countries, including Japan, South Korea, and Australia, treat bitcoin as legal property. Although many countries do not consider it legal currency, most governments worldwide now have different cryptocurrencies. For example, Singapore does not consider bitcoin as legal tender but has implemented regulations allowing individual investors and businesses to acquire bitcoin holdings and trade them.
The regulatory frameworks vary across regions, countries, and states but, they also have a few common aspects. For instance, bitcoin exchanges are legal in all the countries that have embraced cryptocurrencies, including the US, Canada, Singapore, Japan, China, and Australia. Therefore, bitcoin transactions and service providers are subject to the various existing taxation, securities, and digital payments laws.
While the Coronavirus pandemic has negatively impacted the more prominent global financial market, it is hard to deny that bitcoin has emerged as a gainer. The pandemic has accelerated the need for bitcoin integration into mainstream institutions and friendlier regulatory frameworks.
