How COVID-19 is impacting the crypto asset industry

In this article, we will look at how the coronavirus pandemic is affecting crypto and what the implications mean for the industry going forward.

Lower prices, less capital

When the WHO officially declared the spread of COVID-19 a pandemic, risk assets started to drop. The stock market had some of its worst days in over a decade, while commodities, corporate debt, and real estate all took a hit. Crypto assets were no different.

The price of bitcoin (BTC) dropped aggressively – in line with stocks – and the majority of altcoins suffered worse. While crypto assets have managed to recover some of their losses, the drop in asset prices affects smaller projects the most.

Most altcoin projects fund their development through the sale of their digital currency or token to pay developers and other contributors.

The popular digital currency project Dash, for example, operates a DAO where community members vote on proposals that are funded using DASH. That means that when the price of one DASH is worth $1,000 like it was in January 2018, the project had a lot more funds at its disposal than it does today when DASH is trading at $67.

While DASH is a large project that has been able to weather the storm, for smaller crypto projects with market capitalizations under $50 million, another “crypto winter” could mean the end as they will struggle to pay for development and marketing efforts.

While bitcoin may be well-positioned to benefit from central bank cash injections and the zero-interest rates environment, the same cannot be said for smaller cryptocurrency projects.

Raising capital has gotten harder

Since the ICO market effectively collapsed, blockchain startups are now primarily looking towards VCs to raise funds. However, in light of the coronavirus and the uncertainty that comes with it, it has become more challenging in the last few weeks.

While venture capital firms are still deploying capital, in-person meetings have become an impossibility, and investors are looking more closely than ever at what they are investing in.

Gustav Christopher Wagner, founder and CEO of market data provider Blockfacts, told Brave New Coin: “Since the COVID-19 spread turned into a global crisis, meetings with potential investors have gone to video conferences only. Fortunately, VCs are happy to have virtual meetings and also to close funding rounds. However, the scrutiny on your business model has increased.”

Crypto conferences cancelled

When the novel coronavirus started to spread beyond China’s borders, it became clear that COVID-19 was no longer a Chinese problem. As soon as the virus spread to other countries, the first handful of blockchain conferences were canceled. By the beginning of March, effectively, all crypto conferences decided to pull the plug, and most meetups are now canceled.

Since the crypto industry has been inundated with conferences in the last few years, a break might not be so bad for the community, but for conference organizers, that means taking a financial hit.

Fortunately, for organizers and die-hard crypto conference-goers, there is still the option to host a virtual event. That is exactly what the industry-leading Consensus conference has opted for in light of the COVID-19 pandemic. Instead of hosting the event in a hotel in New York, this year’s edition of Consensus will be a distributed virtual experience.

Remote working means business as usual

On a positive note, remote working has been embraced from day one by many blockchain startups and crypto projects due to their distributed nature. The global shift towards remote working, therefore, does not mean sand in the wheels for most crypto companies.

The crypto asset industry is arguably one of the best-equipped to handle communicating effectively across different time zones, maintaining productivity, and managing teams remotely. While employees in other industries may be struggling to adjust, most crypto startups are already working remotely.

Stablecoins shine

The use of stablecoins has increased over the last few weeks. Especially dollar-backed digital currencies have seen an influx of funds as traders and investors moved funds into stable assets when risky assets collapsed.

The two leading dollar-backed stablecoins – Tether USD (USDT) and USD Coin (USDC) – have seen substantial inflows but even smaller coins, such as Binance USD (BUSD) and Paxos Standard (PAX), have witnessed inflows and moved up the digital asset rankings (by market capitalization).

Jeremy Allaire, CEO and co-founder of USD Coin issuer Circle, tweeted: “[USD Coin] surging in market demand over the past days, reaching new ATH at $568m in circulation. Fascinating to see "flight to safety" within the crypto macro market, but also demand for high-quality USD liquidity for markets.”

“Demand for internet dollars — digital, fast, global, secure, cheap to use — should increase significantly. People and businesses will want an architecture where they can make and receive payments with less counterparty risk and more security,” he added.

Testing DeFi’s robustness

The DeFi market has taken a hit as a result of the coronavirus-driven correction in the digital asset markets. According to data compiled by DeFi Pulse, the total value of funds locked in decentralized finance protocols dropped by around 50% from an all-time high of over $1.2 billion in mid-February to $633 million today.

The drop in DeFi’s “market value” can be attributed to investors moving out of DeFi protocols and into cash. However, a lack of trust in the stability of DeFi apps will have also played a role in the decline in market value. In light of how the MakerDAO protocol failed to maintain business as usual during “Black Thursday,” some skepticism is perhaps warranted.

What the medium to long-term effects will be on the crypto asset industry remains to be seen. For now, assessing the current situation and returning to a sense of normality is what crypto, and most under industries, probably need the most. How long that will take remains unknown.