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How Bitcoin May Respond to Reimposed Restrictions to Curtail Covid-19 |
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08th Jan 2021

How Bitcoin May Respond to Reimposed Restrictions to Curtail Covid-19

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Even new strains of the coronavirus spread and the UK and many parts of Europe reimposed lockdown restrictions, Bitcoin didn’t lose its sheen. The pioneering cryptocurrency breached the $34,000 mark for the very first time since its launch, rising $5,000 in the first 3 days of 2021. This meteoric rise came against the backdrop of an unprecedented year, during which BTC gave over 300% returns.
While gold erased a significant part of its gains from early December 2020, oil saw the worst decline in seven weeks, as the UK announced the discovery of a new mutation of the coronavirus and a return to lockdown status. Other parts of Europe soon followed suit. Industrial metals, including copper, dipped too, while the US dollar strengthened from its multi-year lows. 

The new wave of restrictions fed investor fears regarding the global economy and recovery in consumption in 2021. Bitcoin wasn’t spared either, dropping 6% on December 21. However, the impact of the digital currency was short-lived. Analysts at JP Morgan explained that recent concerns regarding the global economy and traditional assets led to speculative Bitcoin buying. 

Bitcoin and the Covid-19 Era

Bitcoin has firmly established its position as a safe haven asset in the Year of the Coronavirus. The key reason for this is the digital currency’s independence from factors that move traditional assets. So, monetary policies, protests, political instability and economic recession don’t usually impact BTC price movements. 

However, the cryptocurrency had never been put to the test during a serious financial crisis since its inception. That is, till the Covid-19 pandemic hit. Since the outbreak of the pandemic, the correlation between BTC and the stock market appeared to rise. For instance, the cryptocurrency’s price fell below the $4,000 mark on March 12, 2020, following a sharp decline in the S&P 500. 

This correlation was explained by analysts as a “flight to liquidity” by investors, who were receiving margin calls on equities trading. The capital requirements were fulfilled through liquidating other assets, such as Bitcoin. On the other hand, fiat currencies were losing their lustre as central banks scurried to bolster their respective economies. Interest rates were brought down to record lows and domestic currencies were printed, especially in the US.

Reimposed Restrictions and Bitcoin

Bitcoin saw significant evolution in its adaptation for real world applications in 2020, from PayPal including BTC as a payment mode on its platform to Square investing a whopping $50 million in the cryptocurrency. With the pandemic stubbornly persisting, if not evolving to ensure survival, the global economy is unlikely to overcome its fragile state anytime soon. So, 2021 is likely to see continuing mainstream adoption of the cryptocurrency.  

This is especially true of companies functioning in the payment space.  With fiat currencies continuing to be volatile, along with the hefty fees for cross-border transactions and a slow process with traditional FX, Bitcoin offers a viable means to streamline the entire process. Companies with huge global reach can especially benefit from this. 

Also new regulatory frameworks and countries increasingly accepting cryptocurrencies as legal tender, Bitcoin is likely to receive a boost. For instance, US President-Elect, Joe Biden, is expected to prioritise the regulation of cryptocurrencies within the first 90 days of taking office. 

On the whole, the market appears bullish on Bitcoin for 2021, with some even predicting the BTC could well cross the $50,000 mark through the year. A large part of this optimism could also have been fuelled by the World Bank cutting its economic recovery forecast for the year. When traditional assets underperform, digital assets certainly present themselves as safe havens. 

Do you agree that lockdowns and restrictions in 2021 will drive BTC to new heights? Connect with us and share your thoughts.