Is the rise in Bitcoin prices due to the coronavirus?

Author: Xiu En

“One group believes that Bitcoin will continue to trend upward as coronavirus-led risk aversion hits traditional markets. The other group believes that anyone who claims that the price of Bitcoin is organic, or follows real-world events, is talking nonsense.”

The top cryptocurrency by market value breached its 200-day moving average at $9,000 during last week’s Asian trading hours and quickly surged to a high of $9,576, bringing its month-to-date gains to more than 30%.

Despite a minor pullback this week, Bitcoin is still trading at a high of $9,405 at press time.

Despite Bitcoin’s strong start to the week, global stock markets are facing selling pressure. Notably, the Dow Jones Industrial Average fell more than 450 points last week, with travel-related stocks suffering heavy losses due to concerns that the coronavirus outbreak in China could spread globally and hurt global economic growth.

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Bitcoin Advantages

As Bitcoin outperforms stocks amid the coronavirus panic, some experts are convinced that cryptocurrencies are attracting safe-haven bids. What’s more, the classic safe-haven asset, gold, is up just 0.65% so far this week.

For some cryptocurrency analysts and enthusiasts, moments of global crisis and geopolitical unrest have become opportunities to explain bitcoin’s price swings.

The phenomenon has even inspired a popular paradigm of arbitrarily attributing any negative or seemingly unrelated event to the value of a cryptocurrency.

The "Bitcoin Advantage Theory" points out that in uncertain times, investors will seek non-sovereign assets and currencies to protect their wealth.

For those who insist that Bitcoin is a safe-haven asset, it does not seem like a coincidence that its price has performed exceptionally well throughout the chaos of 2020, increasing its value by nearly a third since the beginning of the year.

On May 22, 2010, Lazlo Hanyecz conducted the first real-world Bitcoin transaction: purchasing two pizzas with 10,000 Bitcoins, the equivalent of $90 million at today’s prices.

Now, some believe its price appears to be directly correlated to growing concerns about the global coronavirus epidemic.

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Will the Coronavirus Really Affect Bitcoin Prices?

Bitcoin has risen every day since Wuhan was quarantined on Jan. 23, increasing its value by 10% in less than a week. It has broken out and remains above $9,000, a level not seen since November.

Mainstream cryptocurrencies such as Ethereum (ether), Ripple (XRP) and Bitcoin Cash (BCH) have also achieved considerable gains, and other cryptocurrencies are following suit.

Cryptocurrencies appear to be mimicking the reaction of gold, a classic safe haven, which has also surged in recent days amid concerns about the coronavirus now spreading across the globe.

In addition to the coronavirus incident, similar conclusions were reached in August 2019 and early January 2020 during the period of growing tensions between the United States and Iran and the escalating trade war between China and the United States.

Still, there is little real research to support the theory that such events are directly linked to Bitcoin’s fate. Instead, market movements are associated with developments in the cryptocurrency industry, such as favorable regulations being introduced or rumors that a country is developing its own cryptocurrency.

Its value is also fixed to the whims of traders who own large amounts of Bitcoin, known as whales.

Cryptocurrency author David Gerard claims that the cryptocurrency market is “deeply tied to insider trading” and that many Bitcoin whales have been “colluding for years” to manipulate its price.

Whales definition : In the world of Bitcoin, mysterious "whales" refer to individuals who own large amounts of digital currency. Bitcoin whales have long been a source of speculation and anxiety. According to Chainalysis' research last year, there are 32 whales holding more than 12,000 to 85,000 Bitcoins.

He wrote in a blog post:

“The Bitcoin price is a game where whales beat the smaller players. Anyone who claims that the Bitcoin price is organic, or follows real world events, is talking bullshit.”

Prominent analysts like Alex Kruger believe that the safe-haven argument for Bitcoin is not strong.

He tweeted on Tuesday that until 1.25 the narrative was that the coronavirus pushed Bitcoin down, now you are saying that the coronavirus is pushing Bitcoin up. Some people are working very hard to make up stories.

Moreover, Bitcoin bought strongly below $7,000 before Chinese authorities quarantined Wuhan for at least two weeks on Jan. 23, beating stocks and extending gains over the past week.

Jason Wu, CEO and founder of non-custodial crypto lender DeFiner, said:

“The virus outbreak may eventually have a negative impact on the crypto market. Many Chinese crypto retailers tend to cash out their cryptocurrencies before the Spring Festival holiday and reinvest in the market next year. With the virus outbreak, this money may not return to the crypto market, eventually leading to a drop in prices.”