Since the World Health Organization declared COVID-19 to be a pandemic on March 11, 2020, many sectors of the economy have been upended. Countries enforced lockdown measures and quarantines, which triggered a change in people’s moods and mental states. One research group took a look at the effect of COVID-19 on the prices of cryptocurrencies. They followed prices of popular digital coins through each wave of the pandemic. Their research started on January 20, 2020 and concluded on April 30, 2020, which encompasses the initial phase of worldwide lockdowns and the drastic measures governments took to slow the spread of the virus.
More than 5,500 cryptocurrencies exist today. Bitcoin is the center of all of them. It triggers a scarcity mindset in investors. The researchers wanted to follow the price of Bitcoin and the number of daily cases and deaths from COVID-19 during the first three months of the pandemic in order to see if there was any association.
Bitcoin’s Price Volatility and Investor Mindsets
COVID-19 affected every part of daily life. For investors, it also affected bitcoin. Nearly all investors report being affected by fears related to COVID-19. When a person feels scared, threatened or anxious, they often make rash decisions based on emotion instead of fact. At first, Bitcoin prices went up during the initial weeks of the COVID-19 news. They went up even faster once COVID-19 was declared to be a pandemic. The researchers measured the psychological states of Italian and Chinese investors using Weibo sampling and Wilcoxon tests of statistical significance. They looked at the word count and language used in social media posts of investors. Their results showed that people stayed home more and conducted business online. This led to the initial Bitcoin price increases.
Social Trends During the Pandemic’s Early Phase
Forced to stay home, many adults without bank accounts had to find a new payment method to conduct transactions, such as buying groceries or paying for utilities. A shortage in circulating fiat currency exacerbated this problem. About 1.7 billion adults without traditional bank accounts were impacted by these issues. About half of them turned to cryptocurrency transactions. However, they didn’t necessarily turn to cryptocurrency as an investment. The people who did have more knowledge of cryptocurrency and pay more attention to industry news, trends and social influencers.
Results of the Study
Bitcoin has traditionally been used by people who want privacy and transactions free of government interference. People with distrust of the government were the first to use it. The researchers found that Bitcoin values had a positive association with the growth in COVID-19 cases and the deaths caused by infections, but only for a short-term basis. Because the researchers only looked at a three-month period, they were unable to determine whether or not there is a long-term relationship between Bitcoin values and COVID-19 cases. Another limitation of the study is that the researchers only looked at the pandemic’s initial phase. As it dragged on, people got tired of hearing news and following the government’s mitigation strategies. So-called pandemic fatigue may have had effects on the mindset of Bitcoin investors.
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