Researchers Find Significant U-Turn in Crypto Patterns Amid the Coronavirus 

With the global financial markets reeling from the effects of the coronavirus pandemic, many have tried to provide interpretations of how the crypto industry has reacted accordingly. A new research paper from the University of Oxford, however, is revealing that there have been some unexpected patterns in the space since the pandemic reached a global scale. 

Exhibiting the Safe Haven Feature 

Titled “How Crisis affects Crypto: Coronavirus as a Test Case,” the research paper was written by Hadar Y. Jabotinsky And Roee Sarel and published to Oxford’s Faculty of Law. In the paper, the researchers explained that they found a pronounced U-turn from the crypto market about midway through the crisis. 

To arrive at their conclusion, the researchers analyzed market patterns between January 1 and March 11, 2020. They found that overall trading volumes and spot markets continued to increase in value as the number of coronavirus patients rose. However, this rise could only go on for so long, as spooked investors started pulling their funds from the market.

The researchers explained that the initial rise in the rise in volumes came from global panic, as many investors turned to cryptocurrencies to protect their wealth. The coronavirus pandemic has forced economic activities to grind to a halt, with countries shutting their borders and companies ceasing operations to keep their workers safe. 

However, the end of February came, and the number of cases globally rose to 50,000. This signaled a turn, as investors started responding more to the number of deaths than the number of new infections. 

The researchers noted that there was a noticeable decline in the number of new cases globally after they reached the 50,000 thresholds. This, as they explained, showed that investors started to view this as a sign of a return to normalcy. So, they went on to liquidate their cryptocurrencies and went back to the traditional stock market. 

The Need for Time-Sensitive Regulations 

Of course, this wasn’t the case. New cases continued to surge, with countries like Italy recording progressive numbers of new cases and deaths simultaneously.

With the Chinese and American economies halting at the beginning of March, the global stock market took a dive, and since cryptocurrencies had been on the decline, investors no longer had a haven to turn to.

The researchers went on to draw some conclusions for financial regulators, explaining that the crypto space could be a source of inherent risk for the traditional stock market. They added that mass move from the financial space into crypto could cause significant instability to the system. Thus, regulators will need to draft guidelines that are targeted and time-sensitive. Interventions will need to be timely, as the crypto space could respond haphazardly to crises.  

“Insofar that the initial uptake in cryptomarket occurs due to pure externalities – so that market players do not internalize the risk – regulation would be welcome,” they said, adding that regulations will need to consider the crypto market’s dynamics and be careful not to affect the assets’ reliability as a haven.