The whole world is panicking today about coronavirus. We will tell you in a moment whether this fear has only big eyes. We will also deal with how what is taking place will affect the economy and cryptocurrencies.
Coronavirus and the Global Crisis
Coronavirus turned out to be a bigger problem than expected. For now, the number of fatalities should not worry us (however cruel it sounds). There are about 3 thousand of them in China About 80,000 are infected. It looks even less scary in the world. However, everyone is panicking, in particular the media or politicians (especially the opposition in individual countries, which can win on their own problems of competition, i.e. governments). In the case of internet portals or newspapers, the matter is even more trivial – coronavirus simply “clicks” and helps in the sale of larger volumes.
So does fear have big eyes? A bit like that, although older people should be careful. Coronavirus is 20 times more dangerous than influenza. If it spread on a massive scale, panic would be more justified. Today it is not and sticking to the basic rules of hygiene should protect us from the risk of getting sick.
Panic, however, does not serve the economy. The epicenter of the disease is China, which can boast a 20 percent share in global GDP. Not only that, nearly 30 percent of the global industrial production is associated with the activities of the Middle Kingdom. What does it mean? Of course, that while Chinese factories are standing, and this is taking place in some cases, there are supply chain problems.
Okay, so maybe the problem only affects China? After all, coronavirus is the biggest problem there. It’s not like that, for a simple reason. What about the fact that technology giants (e.g. Apple) are from the USA, when components of their equipment are produced in China.
Interrupted supply chains mean the failures of small and medium-sized companies (the largest ones will probably survive). Tourist companies come to producers. The latter industry will receive from the coronavirus a powerful quarry. Again: the main actor will be here – often irrational – fear of contagion.
Not only that fear of an epidemic will hit the political sphere, but it can be used cynically by the opposition to come in power.
However, internal group struggles are not enough. A bigger problem, e.g. for the idea of the European Union, maybe ideas of re-closed borders. Everything to keep the disease from spreading. Not only are the supply chains broken, but the existing ones will get longer. Not to mention that such an event may prove to be an ideal fuel for secessionist politicians who in their countries urge the collapse of EU structures.
Government help for problems
Let’s go further and assume that coronavirus will not give up so easily. Central banks and governments will eventually have to take matters into their own hands. They are already starting to lower interest rates. It’s not going to help. Most often it did not help during crises, so now it is doubtful that it would be different. The authorities will start to pump the economy with money created from thin air. We can already see examples of such ideas. Hong Kong has suggested that every adult citizen would get 10,000 Hong Kong USD (it’s about 1,300 US Dollars). In India, the finance minister said that “more money” must be given to citizens.
This is great news – only those who do not know the basics of economics will shout. Such a policy resembles the famous “bread and games”. To prevent riots, politicians will start handing out “free” money to citizens. Effect? When a good arrives on the market too much, it begins to lose value. In short, inflation is ahead.
Impact on cryptocurrencies
We now get to the heart of the matter. What awaits bitcoin and cryptocurrencies? Will Bitcoin be the ultimate winner in this situation or it will lose? It is not clear whether what we see today is the beginning of the crisis. Many analysts think so.
If the world of finance begins to burn – and now the prices of oil, copper and stocks are falling – people will start looking for safe assets. Cryptocurrencies are hard to recognize as the latter. At least apparently, because – as the coronavirus example shows – it is unclear what will happen to them in the near future when the media changes their Bitcoin narrative. Until now, the top cryptocurrency was synonymous with speculative and dangerous assets. BTC was created as a response to the 2008 crisis, to disrupt the old financial systems.
Uncontrolled printing and inflation – in the blockchain world this problem may not exist. In addition, the new technology ensures transparency. This is also important in the context of supply chain problems. These may be manipulated in the near future and subject to various pathologies. Blockchain can prove to be the perfect guardian against human dishonesty.
In addition, BTC has already shown that it benefits from crises. The problems of banks in Cyprus in 2013, the US-China trade war, the threat of conflict in the Middle East and the first wave of panic associated with coronavirus – these are the first examples on the shore.
So we have two main variants. The first – and probably the most real – is based on the fact that the disease will be defeated and in a month the virus will be the hero of memes. Then, in a sense, everything will return to normal, although the economy will still have to catch up with shortness of breath.
Second: the virus will continue to spread, panic will expand and we are facing a really solid crisis, maybe even bigger than the one from 2008.
We still do not know, however, how cryptocurrencies will behave in such a geopolitical and economic situation. It is possible that the current declines are just a correction of solid increases that we have seen since the beginning of the year, and the golden times for BTC are ahead of us.