Halving in Times of COVID-19: The Story of Cryptocurrencies in Q2–2020
Before COVID-19 threw a spanner in the works of just about everyone on planet earth, 2020 was widely expected to be a key year for bitcoin. The widely anticipated halving of the currency was scheduled for May 11th, 2020.
In terms of impact on the world of cryptocurrencies, halving of bitcoin is comparable to the US Presidential elections, which by a strange coincidence, is also slated to take place later this year.
There have been two previous such events in the history of Bitcoin, both followed by massive surges in the price of the crypto. The last time it happened, the halving eventually led to the crypto-bubble of 2017–18, where the prices of 1 BTC reached an astronomical $20k.
But with the unprecedented systemic shock to the global economy thanks to the viral pandemic, things look far less uncertain after the third Bitcoin halving. Here is how the story unfolded in Q2 of 2020.
May — Flattering to deceive
Back in March 2020, as global markets tumbled as COVID-19 took root, bitcoin followed suit with a brief 27% plunge in value to $4000. By May 1st, it had recovered quite a bit, with valuations hovering around $8700.
And in the run-up to the May 11 halving, there was increased volatility. A 15% surge pushing its values above the very psychologically significant marker of $10,000 on May 7th. But this was short-lived, with the value hitting a low of $8200 within 48 hours.
While global markets hit a hopeful path to recovery in May, bitcoin forged its volatile path, frequently getting close to that magical $10k mark before flattering to deceive.
June — Decrease in volatility
The picture was far more attractive in June, as Bitcoin experienced a sustained upswing in valuation. The price volatility (bi-annual, 30-day) which had been on steroids since February reached a low of 45.60% by the end of the month.
With its value staying between $9000 and $10,000 for most of the month, June was a tranquil month, by crypto standards at least. Back in May, prominent investors like the billionaire Paul Tudor had announced their preference for Bitcoin as a hedge against inflation in the global markets.
But they were in the minority, as most investors opted for a wait and watch approach. This is not surprising, considering the delay between halving and the eventual surge in earlier iterations. For instance, after the 2016 halving, the surge took one full year to materialize.
July/August — Hitting record levels for 2020
After a sustained flattening of demand in June-July, Bitcoin prices surged to $11,000 in the last week of July. This was a level the currency had failed to touch for nearly a year, having last achieved this peak in 2019.
The global economy is facing increased volatility as the fears of the second wave of COVID-19 increased in July. Gold prices have soared, and government stimulus packages increase the risk of inflationary trends.
Amidst all this uncertainty, bitcoin remains a high-risk investment for the short term. The best many experts hope for it is a peak of around $12,000 — $13,000 until the end of the year. Any talk of getting even close to the record of $20,000 is highly premature, given the status of the global economy.
Other Cryptocurrencies have a different story to tell
While bitcoin struggled with twin effects of the pandemic and the halving, other cryptos surged ahead after May 11. As the supply of BTC slumped thanks to reduced selling from miners, alt-coins like Ethereum saw unprecedented spike in demand.
A lot of it was down to increased interest in cryptocurrencies and blockchain technology, generated by the pressure caused by the virus and lockdowns on traditional finance. But as Bitcoin was caught in its supply crunch, the alt-coins were able to catch these headwinds.
While Ethereum doubled in value in the last four months, some of the smaller currencies, like tezos and link token have also impressed. Link, in particular, posted 60% growth in June and has displayed a mind-bending 1000% growth since May 2019.
The Story So Far
The lockdowns and social distancing have given fresh impetus to all online technologies, and blockchain is no different. But the economic impact of a slow march into recession will be felt even by cryptocurrencies in 2020.
COVID-19 has been a mixed bag so far for cryptocurrencies — there are opportunities to be exploited, but the volatility and uncertainty will remain, and perhaps increase as well. The halving had a short-term impact on both bitcoin and other alt-currencies, with contrasting effects.
But does the current surge by Bitcoin indicates the beginning of a reversal in fortunes or the first in a series of peaks and dips? May, but despite the undeniably dark clouds on the horizon, the silver linings do look quite promising!
