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072 171 1979

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Has the COVID-19 pandemic affected the cryptocurrency market?

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Has the COVID-19 pandemic affected the cryptocurrency market?

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The global stock market crashed on 12 March 2020, now referred to as Black Thursday, and Bitcoin lost more than half of its value on that one day. The sell-off in the traditional markets triggered investors to liquidate their Bitcoin and gold assets, at an expensive cost, but although international stock markets remain stagnant amid the COVID-19 pandemic, the cryptocurrency has quickly bounced back.

Bitcoin is now up 22%, trading at R169,800, and the market continues to acquire new entrants, report higher trading volumes and present a more compelling use case. Trading platforms like Paxful, a registered peer-to-peer marketplace for the sale and purchase of Bitcoin, have seen a spike in new user registrations globally, indicating continued investment by existing cryptocurrency investors and new, first-time entrants.

The number of traders willing to pay above-market rates for Bitcoin increased too – in South Africa by 2% above market, Nigeria by 15%, Kenya by 7%, and Ghana by 1%.

One of the reasons behind the increase is that despite the expected price volatility, many people in emerging markets such as those in Africa and other markets like Argentina and Venezuela are turning towards Bitcoin as a potential safe, non-geographically specific investment in these uncertain economic times.

Local currencies tend to be weak in these countries and in some cases this has even led to hyperinflation. Cryptocurrency is largely used for trade as e-commerce and remittance, rather than just speculation, and as a result it presents an ideal vehicle to create greater financial inclusion in these countries, and traders are selling more Bitcoin as an immediate in-hand asset.

Transmission of COVID-19 via surfaces is also incentivising consumers to move towards a cashless environment, which in turn increases demand for digital currencies and more non-in-person trade.

Africa is the place to be

Africa is the most promising region for cryptocurrency adoption in the context of high inflation rates, volatile currencies and underdeveloped banking infrastructure. According to South Africa’s largest cryptocurrency exchange, Luno, record trading volumes were achieved in March 2020, with a 25% hike in new account openings in South Africa in the first quarter of 2020 compared to the previous quarter.

Cryptocurrencies present solutions to many of the financial challenges in Africa, like lower-cost and faster remittance payments, than are currently available. While much of the focus elsewhere has been on investment, speculation and trading, the utility benefits of cryptocurrencies are more needed in Africa than other continents.

Marius Reitz, General Manager for Africa at Luno, adds that a recent client survey, undertaken during the pandemic, highlighted that 42% of Luno wallet holders plan to buy more Bitcoin during the pandemic and 41% plan to trade in the next six months.

‘Over 4,000 customers responded to our survey and indicated that they are planning to increase their crypto holdings or trade in the next six months, while less than 6% plan to sell. Interestingly, 70% of inactive customers want to automatically invest a fixed amount in cryptocurrencies, indicating that they are moving closer to traditional investment models,’ he says.

The sector continues to attract and retain top talent worldwide and in Africa, with a high calibre of candidates with scarce skills joining cryptocurrency companies and trading platforms, ranging from software developers and security specialists to financial, legal, and compliance experts.

The third Bitcoin halving took place on 12 May 2020 but, for an asset that is known for its volatility, this major event arrived without significant price swings. The crypto market has shown a good degree of buying power throughout the COVID-19 pandemic.

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