Global finance has seen some massive shifts caused by the worldwide coronavirus pandemic, COVID-19. Stock markets have been tumbling in the past few weeks, and economies look set to struggle for the remainder of 2020. But while traditional stocks have fallen, cryptocurrencies such as bitcoin appear to have weathered the fallout reasonably well.
Bitcoin has frequently been referred to as a haven asset – immune to the real-world factors that cause the stock markets to plummet. It has been notably compared to other assets such as gold and stocks and has seen significant jumps of 10% during days of this crisis. However, this classification has been questioned recently, with bitcoin also decreasing sharply in value. The cryptocurrency fell by at least 30% throughout five days earlier in March, and this indicates that it is not as impervious to the effects of COVID-19 as previously thought. This sharp drop was almost certainly a result of the global pandemic, as people sold off assets.
Despite all of this current volatility, analysts do believe that bitcoin will eventually settle down. Although it is currently trading lower than it was at the start of the year, it has made massive gains amidst all of the sell-offs. Regardless, this may have wider implications for the future of bitcoin and other cryptocurrencies. If it can no longer be considered a haven, then it is just as risky as any other investment. Even after this global financial volatility dies down, bitcoin can no longer enjoy
It’s essential also to consider the global ramifications of cryptocurrency beyond just the COVID-19 pandemic. In a world that is becoming increasingly aware of the dangers of global warming and unsustainable consumption, bitcoin can be considered a problem. Before COVID-19 captured the worldwide focus and altered day to day life, the climate change movement was gaining traction. Even if bitcoin can retain its value throughout the COVID-19 crisis, its place in the future comes into question when one considered its significant (and ever-increasing) rate of energy consumption. A year ago, it was estimated that the bitcoin network used more energy than the entire country of Switzerland.
This will only be exacerbated by the bitcoin halving, which is expected to happen later in the year. This event is designed to halve the number of bitcoins that are mined from a single block, necessarily requiring miners to do double the work for the same amount of bitcoins that they are receiving now. This puts pressure on miners and bitcoin farms to increase their production to remain profitable. These farms are continually upgrading their hardware to keep up with demand, and expanding their enterprise to mine more, faster.
The result is a growing need for energy, but also excessive consumption of technology that is discarded as soon as newer alternatives become available. Although some bitcoiners do argue that the mining system takes advantage of otherwise unused renewable energy, this is certainly not true for the whole system. The halving will increase energy consumption in bitcoin farms that are already responsible for the largest share of energy use. Although bitcoin and other cryptocurrencies have been left off of the climate change agenda so far, this may change after the halving, which could also have adverse effects on its prices and demand.