The Wuhan virus epidemic has severely disrupted daily life in China. Photo: AFP

Bitcoin has been an excellent gauge of trouble in China since the trade war with the US kicked off in 2019. China has capital controls and massive wealth, so that in times of stress huge volumes of money seek safe havens, of which bitcoin is an asset with a tiny market cap when compared to the wall of money in the system, wrote Clem Chambers in Forbes.

If you put yourself in the position of a wealthy mainland Chinese person, what would you be thinking right now? It is scary enough for us in the West to see this outbreak when there are barely 600 infections, imagine when you are “kettled” in China with tens of thousands of infections and travel bans all around.

Would you not buy some bitcoin (BTC)? I believe that this reality has been feeding directly into bitcoin’s price. So when the infection numbers out of China were showing drops in the rate of growth, it was strange to see bitcoin staying at highs above $10,000. They fell back under $10,000, as you would expect if the BTC thesis and infection numbers were going the right way, but suddenly the price popped back up to $10,500.

That meant either the thesis was mistaken, or the numbers were wrong.

Well, today the numbers have been revised up dramatically and heads have rolled in the Chinese government. Markets, which had rallied on the old numbers showing growing control of the outbreak, slumped.

The thesis that bitcoin is a gauge for the outbreak holds.

So what does bitcoin at $10,000 tell us if this theory is right? It suggests that the outbreak is just about under control but that the situation is fragile. The official numbers are now hard to project in China with the range of outcomes going from 100,000 to 500,000 total infections. The the sky is the limit if these new numbers are just more disinformation.

For those outside China, the key is the growth rate of infection and the rate of control for the current tally of around 500-600. This number can be expected to rise to a peak of total infections in mid- to late-March with similar timing to peak numbers in China. This is the growth rate that we need to watch. If the growth rate continues to fall, we can breathe a sigh of relief.

If bitcoin takes another leg up and hits $14,000, it will be time to make some serious plans. I have a fairly decent amount of BTC and I can assure you I would like to see it back under $10,000, because if bitcoin starts to drift down the chances are the outbreak is under control.

Mining impact

The Wuhan virus outbreak’s impact on bitcoin and other proof of work (PoW) blockchain companies could be significant, as it may reduce or cut off the supply of mining hardware, be[IN]crypto reported. Most miners upgrade frequently as old machines give out. A substantial supply chain disruption in GPUs and ASIC miners would likely hinder mining capabilities.

Such a problem would create a dramatically lower hash rate, and would likely increase transaction fees for most users, as well as slow block confirmation times. All of these problems would result in decreased network effectiveness.

What’s more, as network effectiveness decreases, adoption will generally slow as well, leaving the market in a place of weakness. This, in turn, could cause significant price changes.

This news, coupled with the awareness that the upcoming bitcoin halving will reduce miner rewards, could prompt miners to liquidate BTC – a process called capitulation. This would also increase the supply of BTC on the market, and thereby reduce the price.

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