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And Now… Crypto-COVID!

How the COVID-19 pandemic is creating “social distance” for crypto-currencies

While the equity markets have garnered a lot of attention in the COVID-19 pandemic, cryptocurrencies have been largely ignored by the media. This is partly because interest in cryptocurrencies in general has waned over the last two years.

Cryptocurrencies are no longer new, but they still don’t do a whole lot for the global marketplace. In any case, the COVID-19 pandemic has shed some light on their market mechanics.

One issue has been lack of access to resources. Mining is a fundamental operation of cryptocurrencies and it requires an ever-increasing supply of computing power—both for the computers themselves and for the power they utilize. As manufacturing slows down due to the pandemic, miners can’t get equipment needed to keep the system going. At the same time, the payouts from mining is quickly dropping. In May, the reward for mining a bitcoin block will drop by half (known as “the halvening”).

This reward schedule is built into the algorithm itself, so it is difficult or impossible to change. Thus, not only are mining companies having trouble sourcing equipment, the payout for their efforts are also about to drop quickly.

Add to this the energy problem. Bitcoin especially has a huge power problem. Will countries that are struggling in a mid- or post-pandemic depression still be able to provide low-cost power to Bitcoin mining operations? This is unclear. On the one hand, energy companies are having a hard time because fewer people are out and about, so energy consumption (and therefore price) has gone way down. On the other hand, just like all of the slowdowns, there may be a slowdown in providing energy. If energy needs to be rationed, it seems unlikely that Bitcoin mining will be chosen over some other public function.

Another of Bitcoin’s problems is that the black market (the primary use of Bitcoin today) is also suffering economically. There are reports that Mexican drug cartels are having trouble sourcing fentanyl, which comes from China. Supply chain issues affect drug dealers, too, and thus impact the market activity of Bitcoin.

Bitcoin may have one advantage: It is non-inflationary. As governments rush to send cash to everyone to keep the economy moving, the value of that cash diminishes. Bitcoin, however, has a maximum amount of coinage that can ever be created. Therefore, there is literally nothing that anyone can do on the Bitcoin platform that would be similarly inflationary. That could lead to a more stable store of wealth. It is still too soon to know where Bitcoin will go. Both the technology and the pandemic are too new, and nobody really knows what the long-term interaction will look like.

As for other cryptocurrencies, the rush to the US dollar has caused for a rise in stablecoin prices. For those unfamiliar with the lingo, a stablecoin is a cryptocurrency directly tied to a real-world asset (usually U.S. dollars). Coindesk recently noted that there has been a sudden rise in the demand for stablecoins. The move to dollar-backed cryptocurrencies has corresponded to the economy’s general shift towards a need for dollars. It’s unclear whether this is a temporary trend or signifies a real shift in the dynamics of cryptocurrencies.

In short, I have few answers at present, just some observations from the sidelines. Cryptocurrencies are worth keeping an eye on, but they still play a relatively minor role in today’s economy.

Further reading on the ups and downs of cryptocurrencies:

Is lack of trust Bitcoin’s biggest security threat? It’s almost a parable: Everyone can see, no one can access, the millions trapped in the ether by a password known only to a dead man (Jonathan Bartlett)

How Bitcoin works: The social value of trust (Jonathan Bartlett)

Bitcoin is a classic bubble investment. In large data sets, correlations are easy to find. Useful relationships are more elusive. (Gary Smith)


Chair of Forbes media says money is about trust Facebook Likes cryptocurrency but the Faceless bureaucrats are not so impressed. Stay turned.

Jonathan Bartlett

Fellow, Walter Bradley Center for Natural & Artificial Intelligence
Jonathan Bartlett is a senior software R&D engineer at Specialized Bicycle Components, where he focuses on solving problems that span multiple software teams. Previously he was a senior developer at ITX, where he developed applications for companies across the US. He also offers his time as the Director of The Blyth Institute, focusing on the interplay between mathematics, philosophy, engineering, and science. Jonathan is the author of several textbooks and edited volumes which have been used by universities as diverse as Princeton and DeVry.

And Now… Crypto-COVID!