COVID-19 Has Reduced the Risk of a Post-Halving Price Dump

The recent COVID-19 market crash has reduced the risk of a halving price dump and could have set up a Bitcoin bullrun, some cryptocurrency experts believe.

Earlier today Chainalysis brought together a group of industry experts for an online panel to discuss the impact of COVID-19 on Bitcoin and what it means for the future.

Chris Bendikson, Head of Research at CoinShares, said he believed the recent price crash in March had prepared miners early for the halving, which will reduce the sudden impact it could have had on their profitability. Those with outdated equipment had already been forced to drop out or upgrade:

“The result being that after the halving passes, plus maybe some months of potential hazard volatility, the industry, the mining industry will be in a much stronger position with an overall lower cost base.”

Bendikson added this set things up nicely for a mid-term bull run:

“What that means is that miners are likely to not have to sell as high of a proportion of their mined coins as before the halving and the actual halving, when you add that to this, means that we're potentially about to see a midterm bullish virtuous cycle in the making.”

Financial crisis shows why we need Bitcoin

Alex Laughton-Scott, Associate Director of CoinShares, explained the crisis has shone a light on the beneficial uses for Bitcoin. He posed the question ‘have the fundamentals changed?’ and then answered his own question by saying:

“The short answer would be: absolutely not. And this global setup is one that very much could show Bitcoin, Bitcoin’s uses and values in their entirety [...] We could be possibly witnessing a bit of a perfect storm brewing for Bitcoin in the medium term.”

All correlations go to 1 in a crisis

According to Laughton-Scott, during times of crisis, all correlations go to 1. That is, everything tends to move in the same direction. He explained the horror price drop in mid-March had been exacerbated by the low market cap, in relation to traditional asset classes, and was further amplified by stop losses and automated trades. This resulted in high volatility, even though many individuals may not share traditional market concerns. The good news is that correlations have already started to return to pre-crash levels:

“If correlations continue to drop, and Bitcoin continues its recovery, it delivers a case study for institutions for how it performs in a global crisis, which is a very key benefit needed to attract that institutional demand.”