Bitcoin Evaporated 30 Billion Market Cap Amid Coronavirus Pandemic and Bearish Economic Outlook
There is a sea of red for stocks and cryptocurrencies this week. Bitcoin has dipped below $6000 for the first time since May 2019. The selloff of cryptocurrencies has extended to altcoins in which the price of Ethereum and Bitcoin SV have dropped 30% and 40% respectively.
Bitcoin Price on March 12, 2020
The selloff of Bitcoin has intensified since 6 pm (HKT), leading to a 23% price drop from $7268. A 30 billion dollar market capitalization of Bitcoin has been wiped out within an hour and Bitcoin once dropped to a yearly low of $5705 (as of press time).
Reasons for the massive selloff
1) Global stock market crash and Coronavirus
The plummeting oil price due to the disagreement between Russia and OPEC nations has been the catalyst for plunging equity indices this week. The New York stock exchange once halted trading for 15 minutes when the S&P 500 tanked over 7%. The US stock market suffered another blow when CME Group announced to cease trading operation at the end of the day on Friday as a precautionary measure to coronavirus.
The widespread of the coronavirus could make things worse. The World Health Organization recently declared the disease COVID-19 a pandemic, in which US President Donald Trump just announced the travel ban to 26 European countries. S&P Composite 1500 Airlines has plunged 13% following Trump’s travel ban announcement.
The coronavirus has seriously dampened the European economy, with Italy tightened its lockdown on economic activities. The shutdown of economic activities indicates economic contraction, in which companies cannot service their debts. When their debts approach maturity, companies may need to dispose of their assets to repay the debts, which in turn leads to a vicious cycle and further economic downturn.
Cboe VIX Index
The growing uncertainty of macroeconomic outlook can be reflected by the alarming increase of Cboe VIX index, which has hit a yearly high of 67.65.
2) PlusToken Ponzi Scheme
As reported by Blockchain.News, OXT research recently released the report revealing how PlusToken scammers can bypass the Know-Your-Customer (KYC) compliance standards in regulated exchanges to transfer funds. The controversy of PlusToken is likely to dampen the investor’s confidence on Bitcoin, however, this has a limited impact on the massive selloff of Bitcoin.
Will DeFi suffer even more?
It is noteworthy that the leading tokens in DeFi suffer the most among other leading altcoins. Maker (MKR) resulted in a daily price drop of 44% where the daily price of Synthetix (SNX) plunged 36%. Apart from the massive selloff of Bitcoin, this can be further explained by the recent shutdown of Paradigm Labs.
The recent stock market crash led people questioning the reliability of centralized financial institutions, which Libertarian 2020 Presidential Candidate Adam Kokesh intended to create a decentralized financial system using AmeriCoin. From current observation, however, it seems that DeFi is too vulnerable to serve as an alternative to the centralized financial system.