Bitcoin and COVID-19

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Coronavirus (COVID-19) has caused market crashes and economic disasters all over the world. There’s no doubt that the economic impact has been massive. No one knows how long we’ll have lockdowns and when our lives can return to normal.

COVID-19 has also had an impact on every stock market in the world. The initial crash in March was massive, but we’ve seen a lot of recovery since that due to massive QE (money printing) by the central banks. It’s too early to say to call bottom, there might be more misery ahead.

It’s easy to understand, why coronavirus causes economic stress. People can’t travel, can’t go to restaurants and can’t use many other services either. These businesses suffer greatly, and many have gone bankrupt already. This has leads to 17+ million newly unemployed people in the US alone in the last three weeks.

But, what about Bitcoin? Is COVID-19 a threat to digital currencies as well? Let’s find out!

The Bitcoin basics

Let’s go quickly through the basics of Bitcoin to serve uninformed readers as well. Bitcoin is the world’s first cryptocurrency. It was introduced in 2008 and officially born in January 2009. There have been many digital currency attempts since 1980s, but Bitcoin is the first real success story.

The reason Bitcoin succeeded lies in its technology. Bitcoin is using blockchain as its data storage, which is a distributed ledger. This means the transaction data is distributed to a network of thousands of computers. This makes it impossible to stop or hack Bitcoin, since there is no central server.

Bitcoin has also a monetary policy set “in stone”, meaning, in its program code. It cannot be altered by any individual. We’ve seen the Federal Reserve create trillions of dollars of currency lately in their fight against the COVID-19. This is not possible with Bitcoin. There will be always just 21 million bitcoins and the inflation rate goes down over time, meaning less and less new bitcoins are mined over the years.

Now we can talk about minters, which are in fact very powerful and specialized computers. There are tens of thousands of miners spread all over the world. Miners solve difficult mathematical computations while fighting for the right to create the next block to Bitcoin’s blockchain.

Mining is very expensive and power-consuming work, which is why miners are rewarded with new Bitcoins. Currently, there are 12.5 Bitcoins created after each new block is mined. This happens in average every 10 minutes.

The lucky miner is getting bitcoins worth about 90,000 dollars with the current price. Hence, it’s a race worth participating in.

Bitcoin and COVID-19

What kind of impact could COVID-19 have on Bitcoin, then? Even if Bitcoin is traded on exchanges and the price fluctuates like any stock, it’s very different from a large corporation. Bitcoin is, in fact, nothing more than program code.

Bitcoin is a distributed payment protocol without a CEO. There is no Bitcoin office building, that could be shut down. Bitcoin doesn’t have any employees, who could be fired. There is simply no infrastructure for COVID-19 to attack.

How is Bitcoin run then? The Bitcoin software is run by thousands of computers (nodes) freely in the internet. Anyone can become a node and support the network any day. Even if some node operators would get sick or even die, there is nothing the COVID-19 can do in the big picture.

Even gold miners are suffering from the coronavirus. Many mines have been shut down due to COVID-19. This is not a problem for Bitcoin: miners are just computers operating 24/7 in large mining farms, where little or no human maintenance is needed.

The Bitcoin network can’t quite run without any human input, but it’s not far from it either.

In the long run, coronavirus could hurt the development process, because many meetups and conferences couldn’t be held. But even here, the impact is quite small. Bitcoin developers are used to working remote already.

Bitcoin price development

If COVID-19 can’t really hurt Bitcoin, why has the price crashed? Bitcoin’s price had indeed a big downfall in early March. The official Bitcoin price went all the way to 4100$ and even to 3600-3800$ on some exchanges.

This was because there was a general fire sale on everything. Many investors had margin calls and were forced to liquidate anything they could to get dollars. This was the reason stock markets crashed and Bitcoin market was no different.

The interesting thing is that Bitcoin price has so far followed the S&P 500 development quite closely. Does this prove, that Bitcoin is not digital gold after all? Not really.

Even if gold price didn’t crash hard, it hasn’t gone up either. Many gold advocates have been shouting 2000$, 3000$ or even 10000$ gold prices. We must remember that gold price is an inversed dollar price. Since gold is officially priced in dollars, we need a weak dollar to get a high gold price.

Gold has made new all-time highs in almost every other currency, except in dollars. This will be soon the trend with Bitcoin as well.

Bitcoin is going to reach new all-time highs (and beyond) when people lose confidence in the dollar. Fed is currently creating them out of nowhere in an alarming speed. Eventually, they go over that invisible border called confidence.

So far, there has been a high demand for dollars (and other fiat currencies) in a panic situation. If the dollar is not an option, where do investors turn to? Physical gold hasn’t been available in weeks and the situation is not going to change better for sure. There’s just one asset left to go to: Bitcoin.

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