Coronavirus And Crypto Market: Is There Any Relation?

Many believe, that coronavirus raging and crypto markets gaining momentum are correlated. But this correlation does not necessarily mean causation, as some experts state.

Mati Greenspan, the founder of Quantum Economics, expressed his viewpoint on the apparent relations between the two events. “So far, I don’t see any direct correlation between the coronavirus and crypto prices.” Instead, Greenspan said that present altcoin rally may indicate a growing interest for higher-risk investments:

“In my estimation at the moment, we’re in an alt season and that generally tells us that people are looking to take risk if they have a bit of extra cash. This is exactly what’s happening in the stock markets as well. It’s most likely that whatever is driving crypto at the moment is a ‘risk-on’ sentiment and not flight to safety.”

While some postulate that coronavirus is a proof of Bitcoin being a store of value, Greenspan denied this statement: “I don’t think anybody inside of China, for example, would be going ‘OK, people are dying here, let me go buy Bitcoin.’”

BTC network is not affected by coronavirus

Despite all the stories about Chinese mining farms being shut down due to coronavirus outbreak, Bitcoin (BTC) network hash rate seems to have taken negligible impact. The network’s hash rates continue to compete, setting new records, according to Blockchain.com.

If such shutdowns exerted any significant influence, the network would react with slowdown, the brightest indicator of the relationship between coronavirus and changes on the crypto market. It is estimated that 65-70% of all Bitcoin mining pools are located in China, as CoinShares Research suggest.

Mining pool activity on Coindance suggests that all mining pools are operating with almost no signs of weakness. Several largest mining pools are located in China, including Poolin, F2Pool, BTC.com, Antpool and ViaBTC. They seem to be running as usual.

Commenting on the situation, Bitmain’s representative stated that quarantine had not impacted the mining industry much, if at all. However, Bitmain did not provide any other comments.

Other narratives are at play

Greenspan stated that there are other narratives driving the prices: “As far as narratives go, the halving is huge. That’s one of the main drivers of the market.” Theoretically, Bitcoin’s halving which is expected in May, may result in increased scarcity, making the price of asset rise.

In addition, increased instability in the Middle East, which began in January, might have ignited the present-day crypto rally. “The whole thing was set off… with the U.S. missile drone strike in Iraq… For the first time in [its] short history, we saw Bitcoin reacting to a major geopolitical event as a safe haven. That gave Bitcoin a lot of legitimacy.”

Greenspan then detailed his viewpoint regarding the swift rise in high-risk investment: central bank monetary policy:

“The more we see action from the central banks, the more we see cash injections from the Federal Reserve, the European Central Bank and the People’s Bank of China. They’re just pushing money into the system and that money has to find a home.”

Talking about possible hyperinflation, Greenspan mentioned recent economic fiascos of Venezuela and Zimbabwe, adding that the phenomenon may have its repercussions, but not everywhere:

“That isn’t happening in the major economies like the United States, Japan and China at the moment… Even economists don’t really understand why there isn’t any significant inflation after all the money that’s been pumped in there. It’s the biggest economic puzzle of our generation.”

But what if the situation gets much worse?

When asked to consider the hypothetical possibility that the coronavirus may cause a global turn to worse, Greenspan diverted attention to what can happen in the nearest future, stating: “The real concern here is the fact that mainland China is on a self-imposed lockdown.” He said that streets of Shanghai are almost empty. This may have significant implications for the global supply chain of durable goods, he noted, adding:

“Even Tesla, for all their stocks zooming and zooming and zooming, they have a huge giga factory in China, which is shut at the moment. It’s not even operating. I don’t know how they’re going to make their production quotas with their factory offline.”

The analyst believes that Q1 will disappoint some people: “The stocks aren’t really reacting. There’s this feeling — a feeling that’s been beaten into the market over the last few years — that no matter what happens, the central banks are going to come in and will be able to pave over any production caps with free money injected into the markets.”

At some point money pumping may reach its climax, and the coronavirus may be the very event which may trigger it. Even if a cure is found tomorrow, it will make China look like it has been standing still for almost a month. This will have repercussions, according to Greenspan:

“It’s like the butterfly effect, where a butterfly flapping its wings in Chicago could cause a typhoon in Tokyo. We have an entire country — the largest country in the world is offline at the moment. Everything will be affected by this.”

Talking about the effect of such economic uncertainty on crypto market, Greenspan answered in general: “How it will affect Bitcoin’s price, I really couldn’t tell you. At the moment, I don’t feel like it is, but in the future, it could.”