The last few months have witnessed sharp price falls and massive selloffs in the cryptocurrency market, following the deepest economic plunge in decades and the coronavirus uncertainty.
In the second week of March, the cryptocurrency industry lost $145bn in market cap, falling from $264bn on March 7th to $145bn on March 13th. However, most major cryptocurrencies started showing early signs of recovery after Black Thursday and the COVID-19 crash.
According to data gathered by InsideBitcoins, the combined cryptocurrency market cap jumped almost 80% after a plunge in March, reaching over $259bn value at the end of the last week.
Daily Trading Volume Peaked at $240.4bn in April
In January 2020, the combined cryptocurrency market cap amounted to $191.7bn, with a daily trading volume of $67.1bn, revealed Statista and CoinMarketCap data. By the middle of February, these figures jumped to $307bn and $166.3bn.
The Black Thursday and COVID-19 crash brought massive cryptocurrency price drops. However, from March 12th till March 31st, the combined crypto market cap rose by $26bn, reaching $184.1bn value, with $132bn in daily trading volume.
Since then, the cryptocurrency market cap has been on the rise, peaking at $263.2bn on the last day of April. The same day recorded the highest 24-hour trading volume on the crypto market since March’s plunge, reaching a total of $253.2bn.
Statistics show Bitcoin holds over 67% of the total market cap, or more than $176bn. Far behind the leading cryptocurrency, Ethereum ranked second with $23.5bn in market cap value. XRP and Tether follow with $8.9 and $8.7bn, respectively.
Ethereum Was the Most-traded Cryptocurrency in Q1 2020
Analyzed by the average number of daily deals, Ethereum was the most-traded cryptocurrency in the first quarter of 2020, with 753.5 thousand transactions per day, revealed the CoinMetrics data. This was more than twice that of the more commonly known rival Bitcoin, which saw only 298.9 thousand deals per day in the same quarter. Statistics show other leading cryptocurrencies like BitcoinCash, Litecoin, DASH, and Monero witnessed less than a tenth of the daily volume of Ethereum.
On the other hand, Tether represents the leading cryptocurrency in terms of 24-hour purchase volume, with a $46.7bn value as of May. Bitcoin ranked second with $39.3bn worth daily trading volume. Ethereum and Litecoin follow with $14.5bn and $3.6bn, respectively.
In the beginning of the Coronavirus pandemic, bitcoin fell to its lowest point in almost a year at around $3.5k. Shortly after, it was back up $6.8k, though it retraced its steps and fallen back down to $5.8k. There has been a big influx of users onto the eToro platform, with investors looking at a range of asset classes, focussing on equities, commodities and indices. From the conversations I have been having, many people have been investing any spare cash, recognising that the low prices we are seeing for many cryptoassets do not match their fundamentals. The price for bitcoin, for example, does not reflect even the lower echelons shown in the majority of price modeling analyses.
“In my view cryptoassets on the whole are being undervalued. Given the significant falls we have seen recently, I would not be surprised to see bitcoin bounce back even further with a solid jump in performance,” said Simon Peters, Market Analyst at eToro back then.
Cryptocurrency Investors Seek Stability In Stablecoins
This was another important factor in the crypto space during the first weeks of the coronavirus pandemic. In such volatile times, provoked by the Covid-19 crisis, people often look for stability. The cryptoasset community is no different and many investors are looking at using stablecoins to do just that.
Cryptoassets have not escaped the COVID-19-induced volatility that has plagued traditional markets, leading to a sell-off in bitcoin amongst others. Instead of selling into fiat, investors have opted to go into a USD-pegged stablecoin such as Tether so that they can remain within the crypto ecosystem and avoid the costly fees transferring back into dollars. However, this injection of liquidity into a usually illiquid market coupled with selling pressure, as investors look to move back into other cryptoassets again, means prices are diverging from the underlying pegged asset. This has raised the question, how stable are stablecoins?
One of the key benefits of some stablecoins is that they enable investors to hold specific tokens tied to their own currency, whether that’s Tether with the US dollar, GBPX with Pound Sterling or JPYX with the Japanese Yen, which we have on our dedicated crypto exchange eToroX.
The problem seems to lie in liquidity (doesn’t it always…). Two things to note here. Firstly, how much liquidity can providers bring from traditional markets? If we see more usage of platforms that aim to bridge the traditional investment world with the new, like eToroX, and subsequently pool liquidity, we’d be less likely to see a divergence in price between stablecoins and their pegged equivalent. Secondly, the introduction of more Central Bank Digital Currencies (CBDCs) could also help stabilise prices and encourage greater convergence.