- Bitcoin price continues to consolidate above USD 7,000
- The Covid-19 pandemic caused crypto markets to do a complete turnaround
- Grayscale smashes quarterly raise record with USD 500 million in Q1 2020
Bitcoin price continues to consolidate over the early weekend, after shrugging off a week of slight losses, with volume seemingly creeping up across the board, as we countdown to 24 days left to the Bitcoin halving event that will see only 6.25 new bitcoins enter circulation every ten minutes on average.
It will be interesting to see the effects on the crypto market, especially as new research from Oxford University Faculty has found that the coronavirus pandemic had caused crypto markets to rapidly do a 180-degree turnaround.
In their blog paper, ‘How Crisis affects Crypto: Coronavirus as a Test Case’,” Hadar Y Jabotinsky and Roee Sarel analyzed the period from 1 January to 11 March 2020 and found that at first, both spot market prices and the overall trading volume went up as coronavirus confirmations rose. But, this correlation reversed, leading up to a market decline.
The writers believe that the starting positive correlation between a health crisis and market rise suggested that traders saw crypto as a reliable liquidity source and safe-haven asset. But once the crisis showed its true severity, the trend reversed, as investors responded to deepening fears of deaths and new cases.
And interestingly, even as new cases declined, the crypto markets did not react and continue to decline when new cases again blew up in early March, leading up to Black Thursday on 12 March. The findings, meant to help regulators, say that they could view crypto markets as a source of systemic risk for traditional financial systems in times of crisis, especially since digital assets are now increasingly related to and connected to legacy finance.
The system’s instability, the write, could be made worse by a mass exodus from traditional markets into digital asset ones, but these could be mitigated by targeted and time-sensitive regulations. Interventions should also be timely, as if made too early or too late, will bring worse effects, particularly as crypto markets do not seem to react to crises in linear ways. They summarize:
“Insofar that the initial uptake in cryptomarket occurs due to pure externalities – so that market players do not internalize the risk – regulation would be welcome. On the flipside, any regulation must be careful not to undermine the benefits which make the cryptomarket potentially more reliable at a time of crisis.”
They also caution against unnecessary regulation intervention in times of macroeconomic stress, because crypto could actually be a business- and bank-saving alternative to investors. They give an example:
“In particular, if traditional markets crash, firms can raise funds by issuing security tokens – which would ease liquidity constraints and reduce the risk of a bank run.”
Among the many already taking advantage of the situation is crypto investment company Grayscale, which now reports that many institutional investors have indeed taken the window of opportunity in this downturn to up their exposure to digital assets.
The crypto-focused investment firm said that it had raised a total of USD 503.7 million in the first three months of the year, almost doubling the previous quarterly high achieved in Q3 2019 of USD 254.8 million. Bitcoin is still where confidence is the highest, as its weighted trusts are the most sought-after Grayscale product, but Ether is now rising in popularity, setting record inflows in the same quarter once investors topped up portfolios with Grayscale products.
It is part of New York-based Digital Currency Group, the parent company of crypto media portal CoinDesk, which raised USD 600 million the whole of last year, so it can be expected that this year will far outstrip that total.
With this, Grayscale’s reported inflows also passed the USD 1 billion mark in a 12-month period, making it the first time it made 10 figures in a year to take its total assets under management (AUM) to USD 2.2 billion, the bulk of which was made up of institutional investors.
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