Cryptocurrency and Coronavirus. Table of Contents
The global cryptocurrency market, including Bitcoin, fell sharply in mid-March following the global spread of the new coronavirus.
Everyone is wondering how the new coronavirus affects the cryptocurrency market.
Is Corona recession like the Lehman shock?
The corona recession is often compared to the Lehman shock.
Therefore, I would like to explain the comparison and difference between what is happening and the Lehman shock.
In conclusion, the current corona depression and the Lehman shock are completely different types of depression.
In short, it is also the difference between a recession and a debt crisis, and of course the recession, that is, the continuation of this corona recession, can trigger a debt crisis and result in a situation like the Lehman shock, but from the beginning, it is different from the Lehman shock that started as the debt crisis.
First of all, the economy is determined by (1) productivity and (2) increase/decrease in leverage (credit/borrowing).
In short, a recession means lower productivity, lower growth, and less leverage.
The productivity through Coronavirus Crisis
While the productivity factor increases in the medium to long term, the impact of diminished leverage in the short term (in some cases (even in the medium to long term) is overwhelmingly large in highly developed countries of credit creation.
Productivity is not gradually declining, but it is caused by intentionally stopping it in the first place.
Productivity fluctuations and growth rates are usually not something you can aim for.
However, in a sense, the only control that can be done is to stop production activities.
What is happening at this point is not that the corona is actually in a recession due to the actual damage, but that it is in the process of being brought there by switching it off, and of these, a “self-actualizing” type of recession.
On the contrary, it is also a story that you can return to the original by turning on the switch.
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Recession with the decline in leverage
On the other hand, the recession due to the decline in leverage is completely different.
Leverage is cyclical and will not recover as soon as it begins to decline.
In the case of a long-term cyclical in the financial crisis class, it is not a recession or such a dimension, but it is a story that it is decided whether bartering will be done depending on how to land.
This was the Lehman shock.
At that time, the credit market (credit/borrowing market) also crashed, and rather credit was sold.
By the way, this time around the second week of March, credits have been sold and prices have begun to fall.
However, the fact that the contract is priced and the price is falling, as a result, is actually still a happy state, and in the first place, even if you want to sell it in the debt crisis, you can not sell it, or you can not cash it because it is not priced.
Corona shock and Lehman shock are different
A credit market that is much larger than the stock market.
Compared to the Lehman shock, which had collapsed, the current corona turmoil in terms of the financial crisis still has about two different effects.
However, the suspension of economic activity can trigger this financial crisis, which will have an impact equal to or greater than the Lehman shock, and governments and central banks are taking measures because they can see it.
This time, many countries turned off the switch of production activities by themselves, but many others have continued in March.
If this off continues in those countries, it will surely lead to a decrease in leverage.
How long can they keep it off?
At the time of the Lehman shock, the US government, which initially insisted on moral hazard and took a resolute attitude, could not stand it and the country decided to rescue in two weeks.
Pay Attention to Monetary Poliies
This corona recession is a rare type of recession in which if countries can switch it on, you can expect a sudden recovery, unlike the story of leverage.
However, if they prolong it, they will lose more like a snowball, and depending on whether or not the corona will end in the first place, it will lead to a decline in leverage first, and it may lead to a full-scale recession, that is, a debt crisis.
Whether or not the corona can converge by the time limit around here will be a turning point for the economy as a whole.
Therefore, governments are now trying to do what they can do by linking economic and monetary policy.
The ultimate goal of this is to delay the time of the debt crisis as much as possible.
However, it is not easy, even if you take economic measures, if you stop production activities in the first place, the effect will be weak after all, and you can put a band-aid on a bleeding place like a remedy for the time being.
Of course, if you have infinite funds, you can do anything, but it will definitely be more difficult in terms of cost-effectiveness than ordinary economic measures.
However, it has the advantage of shifting the time when the debt crisis comes, so it must be done.
And monetary policy is even more troublesome, and it’s a good concept to do anything before the debt crisis comes, but when the debt crisis really comes, monetary policy becomes important.
Cryptocurrency at the time of crisis
So far, we’ve talked about the debt crisis and what’s happening at the moment, and now let’s consider what the impact could be on cryptocurrencies.
Cryptocurrencies, especially Bitcoin, are sometimes called digital gold.
The main reason for this is the following two points:
- The number of issues is fixed and it is not related to a specific business, organization, or group.
- The connection with the real economy is not great.
The former is just like gold as Gold isn’t capped, but it’s not mined every year, nor is it an infinite resource.
It’s really rare.
Bitcoin has an upper limit on the number of coins that can be issued, and its issuance schedule is set, so it is thought that the value of Bitcoin is unlikely to be diluted like gold.
Moreover, like gold, Bitcoin is not an asset associated with any particular government, company, or group.
It’s literally a decentralized currency, but its value itself isn’t made up of any particular person like this.
Assets of this nature have the characteristic of being easily positioned as safe assets in the event of a war, a recent illness, or any crisis.
This is because we feel the risk that if a country wars with each other, the country itself may disappear, but even if the country disappears, something like gold can be considered.
Even in the case of a crisis caused by economic circumstances, assets that are not closely linked to the economy are generally considered to be highly resistant to the crisis.
It is still difficult to say that Bitcoin is deeply linked to the real economy at present, and regardless of whether it is a story that can be evaluated in nature, it is relatively resistant to such a crisis because it has a little relationship.
It may sound a bit ironic that the reason for the crisis is that it has little to do with the economy, but this is one of the finest features.
Why and how Bitcoin is considered as Digital Gold Safe-haven?
Corona recession on the crypto market
As mentioned above, it is quite possible that Bitcoin will be bought during various crises.
On the other hand, in my personal opinion, the crisis that can be assumed as a really powerful buying phase is, for example, a war, or even if it is an economic crisis, cash such as the Lehman shock.
It is the ultimate crisis of the type that evaporates.
The current corona recession is thought to be just before a debt crisis like the Lehman shock, but at this point, it has not been confirmed and it lacks a sense of direction as an escape destination from the crisis.
I don’t want that to happen, but as Corona becomes more prevalent and we see a global crisis not only economically but also socially, the Bitcoin market could be strongly bought.
From a medium- to long-term perspective, as a result of large-scale economic measures and monetary policy that are currently being implemented to prevent the debt crisis, further burdens on national finance are expected, and these are the demands for Bitcoin.
Or it could be advertised as an incentive to buy Bitcoin.
These movements could have a positive impact in terms of price.
However, the governments of each country are implementing various policies to reduce production activities, including the prohibition of going out as a measure against coronavirus.
This should be watched because these may have a negative effect on the essential part of Bitcoin, for example, it causes a decrease in the hash power of mining.
Comment by Hans
April 24, 2024
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