#coronavirusepidemicaffectcryptocurrency

The head of World Health Organization announced that the world is now dealing with the coronavirus pandemic, but he note that for the first time in history, the development of the pandemic has been contained. The number of cases of COVID-19 virus in Italy has grown another 25% per day and exceeded 800 000 people. In this regard, previously introduced restrictive measures in certain regions are distributed throughout the country. The number of cases outside of China continues to grow at an exponential rate and has already exceeded 32.5 thousand people. The epidemic also did not go pass the US, so many are very interested in how markets react to coronavirus.

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Market before coronavirus

Alarming fears that the rapidly spreading coronavirus will destroy global supply chains and lead the economy into recession are capturing investors. On Wall Street, passions raged for three days, the Dow Jones Industrial Average index showed a magnitude of 1000 points or more. The US stock market on March 9 showed the worst drop since 2008 amid oil collapse and persisting concerns about the negative economic impact of coronavirus. S & P500 at the end of the session fell by 7.6%, to 2747 points. The energy sector lost 20% due to a drop in WTI crude oil prices by 27%. Yesterday's stock rebound followed Monday's most powerful drawdown of indices since the crisis times of 2008. The external background for the American session was mixed: European markets showed mostly negative dynamics, while Asian ones finished in positive territory, Asian indices are recovering some of the losses after falling the day before. In response to what is happening, the US monetary and fiscal authorities announced that they are developing a plan to support the economy. The Fed is expected to cut rates immediately by 0.75% at the March 18 meeting. President Donald Trump said he plans to discuss with the Senate a radical fiscal stimulus in the form of lower payroll taxes and to help sectors that have been hit hardest by the virus, namely air carriers, cruise operators and the hotel industry. Investors are waiting for more information on the stimulus package that will provide the necessary support to the US economy.

Potential Recession Indicators

In the face of uncertainty at the beginning of 2020, many investors are trying to determine how markets react to coronavirus and whether to prepare for the worst. Bank of America has published a list of possible recession indicators developed by its experts to monitor markets and economies: Decline in consumer sentiment in the United States US consumer is an indicator of the duration of a global economic downturn. Conference Board consumer confidence index showed values less than expected 132.6 against the background of the controversial situation with the spread of coronavirus. In general, a strong consumer is central to the US economy, which is experiencing the effects of a trade war with China and another health crisis. The fall in the small businesses confidence level below 100 A fall in The NFIB Small Business Optimism Index is usually a sign of a slowdown in the economy. Currently, the index is at 104.3. If the optimism index for small businesses NFIB drops below 100, this may indicate a recession. Low mortgage activity Another important indicator is mortgage activity. With a decrease in mortgage applications, the economy gets a negative impact. To track the decline in mortgage purchase activity, analysts use the Mortgage Bankers Association Purchase index. The number of applications for unemployment benefits is above 250,000 Bank of America estimates that when the number of applications for unemployment benefits exceeds 250,000, this may mean that a recession is occurring. Last Thursday, the US Department of Labor announced that the number of Americans applying for unemployment benefits last week fell by 3,000, seasonally adjusted to 216,000 people. That is, despite the outbreak of coronavirus, the data confirm that the labor market is in good condition. In February, the US economy added 273,000 jobs, exceeding expectations for 175,000 new jobs last month. The unemployment rate also fell to 3.5%, reaching the lowest level in 50 years. Assessment of the likelihood of re-election of President Trump Bank of America believes that reducing the likelihood that President Donald Trump will be re-elected may lead to a drop in markets. Analysts use Oddschecker.com indicators to monitor, demonstrating that the likelihood of re-election of the current president fell to 58% from 62% on February 20. On Wall Street, they believe that although Biden, whose rating has grown significantly, will not cause harm, Trump is more optimistic about stocks and the economy.

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US market confidently recovering from collapse

To understand how markets react to coronavirus, you need to look at global stock exchanges, where high volatility remains against the backdrop of the collapse of the oil market and the continuing risks of the spread of coronavirus. So the Japanese Nikkei is adding 0.9%, the Chinese Shanghai Shenzhen CSI 300 against the background of the visit of Chinese President Xi Jinping to Wuhan is growing by 2.1%, the Hong Kong Hang Seng increased by 1.5%. European stock markets in the first hours of trading are growing by 2.5-3%. The American stock market yesterday did not immediately determine the direction and went into the red before finally consolidating in the black. The creep in quotes for growth on US exchanges has been encouraged by the hope that the White House will develop and promote economic measures in Congress to overcome the situation with COVID-19. In turn, congressmen from both parties expressed skepticism about the tax cuts announced by Trump, but the investment community does not lose hope of incentive fiscal policies in the United States. On Tuesday, March 10, the United States stock market ended the trading session with a steady increase in major indices. Standard & Poor's 500 wide market index increased 135.67 points or 4.94%. Demand for safe assets remains. US bonds are getting more expensive. The 10-year treasury rate remains below 0.7%. Brent crude oil after the collapse the day before is growing by 5%, to $ 36 per barrel. The price of gold is reduced to $ 1,660. Thus, risk appetite today shows the first signs of recovery, but remains weak. At the end of the session, the Dow Jones Industrial Average blue chip indicator increased by 1167.14 points or 4.89%, the high-tech industries index Nasdaq Composite went up by 393.58 points or 4.95%, and the S&P 500 recovered during the upcoming trading above the previous local minimum of 2855 points. As part of the blue chip index, every single paper closed in positive territory. Over 6% of the shares of Tesla, JPMorgan, Apple (NASDAQ: AAPL), Visa (NYSE: V), Home Depot (NYSE: HD) and others increased. A dynamic rebound at Tuesday's trading was undertaken by many oil companies, who lost significant parts of market capitalization at the start of the week - Marathon Oil shares added 21.2%, Apache - closed up 13%. Shares of Occidental Petroleum (NYSE: OXY) jumped 14.6% after it announced it would cut quarterly dividends and cut its capital investment plan due to falling oil prices. Cruise operators also made big gains amid Trump's promises - Carnival shares rose 10.5%, Royal Caribbean Cruises - 7%. In New York these days, the FinTech Forum, organized by Wolfe Research. The forum program includes presentations, talks and meetings on the development of digital and multi-channel payments, electronic and mobile commerce, B2B, blockchain and other new technologies, security payments. Attendees will be Visa and Mastercard. Nevertheless, Freedom Finance's sentiment index remains under pressure at 8 out of 100, which is in line with 2008 levels and reflects concerns about the negative economic impact of the coronavirus epidemic.

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Goldman Sachs expects further market decline

The increasingly pervasive coronavirus has already significantly affected many sectors of the global economy, so many today are interested in how coronavirus epidemic affect cryptocurrency. Today, many people use the main digital currency Bitcoin to protect their investments, often comparing it with gold, so it is really important to know whether it can go up in price in the near future or can be cheaper on the contrary. The new coronavirus is most actively spreading in China and neighboring countries, according to mid-February, more than 1,500 people have already been infected. Several Chinese cities are quarantined. The epidemic may affect the value of various assets, such as Brent crude oil, due to the cancellation of many flights at airports around the world. So, more and more experts recently think that Bitcoin is already starting to perform protective functions for investments and assets. This means that when the world experiences global upheavals, cryptocurrency begins to grow in value. At the beginning of the year, when a military conflict arose between the United States and Iran, the price of bitcoin rose sharply, which, according to many, is a direct consequence of the event. After that, many people had little doubt that the coronavirus epidemic affect cryptocurrency, but how exactly, the question remains open for many. Let us further consider the various positions on this issue and their basics.

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Why coronavirus epidemic can affect the cryptocurrency?

If the epidemic gets out of hand, the consequences may be most serious, given the high level of corporate defaults, since China is one of the main players in the cryptocurrency market today, the country has a command state system that solves any problems tough. Coronavirus did not spread in a single province in China, so it poses a risk to China’s economic security in general. That is why the regulator will have to introduce tough measures, restrictions not only on the people’s movement, but also on that of capital. In this way, Bitcoin, which has become a mass technology of global cross-border movement of capital, can immediately receive a huge number of new users, in the hundreds of millions, who simply can not physically carry out transactions with fiat currencies. Moreover, other countries will be able to take advantage of the fact that cryptocurrency mining farms can stop, and this will also affect the complexity of mining, which due to this will significantly decrease in the Bitcoin network. The possibility that coronavirus epidemic affect cryptocurrency should be considered both from the point of view of changing the complexity of BTC mining, as well as from the position of the recently appeared relationship between the BTC rate and exchange-traded assets. Both options suggest the most negative scenario for the spread of the epidemic, up to a national disaster. As for the impact of market inter asset relationships, one of the main drivers for Bitcoin is gold prices and the RMB course, the correlation of prices with which is obvious. The national coronavirus epidemic could force a state of emergency in the country, which could lead to interruptions in gold mining, and since China is the global leader in this industry now, it is likely to cause a significant increase in the price of a precious metal. Also, the RMB rate will begin to weaken, which will also lead to an increase in Bitcoin prices, as it could already be observed in 2019 due to a rather high correlation. Last year, during the U.S.-China trade war, as in January 2020, amid the worsening situation in Iran, Bitcoin was in demand from investors, which led to higher prices. Cryptocurrency in these situations has shown interest in itself, as a reliable investment tool that can protect investors' assets. Amid rising gold prices and the depreciation of the Chinese yuan, we can expect an increase in the value of the leading cryptocurrency. Disabling a large number of mining farms will very quickly lead to a decrease in the complexity of mining BTC. Some believe that this may cause a drop in the value of Bitcoin, since its mining will become a more profitable enterprise than a holding, which will encourage market participants to sell their coins. At some point, this can negatively affect the value of Bitcoin, however, it will not last long, since the redistribution of the complexity of the network will not take long. The next step will be that the market very quickly finds a balance level that is beneficial for both investors and cryptocurrency miners. After such a short decline on the background of a drop in network complexity, we can most likely expect another wave of Bitcoin exchange rate growth. However, so far no one can tell exactly how much BTC can go up after that.

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Why coronavirus epidemic will not affect the price of Bitcoin?

There is still insufficient data on the development of events around the development of coronavirus in China, based on which it would be possible to trace a clear relationship between the infection and the cryptocurrency market. Some financiers consider the biggest problem, not that coronavirus epidemic affect cryptocurrency, but a fall in activity due to the holidays due to the Chinese New Year. They explain this by the fact that China, as you know, is the main cryptocurrency market and the biggest user in the world. Thus, the decline in activity in China will in any case affect the overall trading volumes and liquidity. There is a chance to see low dynamics of demand for cryptocurrencies, albeit with periodic surges in volatility. The global phenomena observed over the past few years have had a key impact on such major indices as oil, gold, stock quotes, and the rates of major reserve currencies, but at the same time they did not significantly affect cryptocurrencies. The effective interdependence of the cryptocurrency and the blockchain industry with offline reality and fiat currencies is quite specific. Many experts believe that the expectations of crypto enthusiasts regarding Bitcoin as a protective asset did not materialize, since there was no large-scale conversion of USD to BTC when it last lowered rates. The Federal Reserve System has not cut rates for more than 10 years, and such a reaction from the cryptocurrency market has been very revealing. With a high degree of probability in the trader's portfolio, there are not only crypto assets, therefore the behavior of such an investor is determined by the news of the global world. Today, only such an interconnection can be traced, at least until the cryptocurrency market ceases to be somewhat isolated.

Which of them is right?