Oxford professors analyzed crypto's performance during the crisis

Over 11 years ago now, the crypto market came into existence with the launch of Bitcoin. The coin's purpose was and still is to protect regular people from economic meltdowns. With the coronavirus pandemic-caused fears, this is the first time that analysts can test whether cryptos can actually do this.

This is exactly what two Oxford professors decided to do. Hadar Y. Jabotinsky and Roee Sarel recently published a paper called “How Crisis affects Crypto: Coronavirus as a Test Case.”

Crypto prices surged as the virus continued to spread

The paper is currently available on the Oxford University Faculty of Law blog, after they posted it earlier today. In the paper, the two observed that the crypto market took a U-turn in the middle of the crisis.

With the paper being already published, it did not follow the market's performance during the entirety of the crisis. However, it did include data between January 1st and March 11th of this year.

The two professors discovered that the spot market prices and trading volumes surged as the pandemic continued. However, at one point, investors started pulling the money out of crypto, causing a price crash.

This behavior indicates that the investors and traders originally had faith in crypto. They viewed digital currencies as a reliable source of liquidity. However, this started to change when the global case count hit 50,000, which happened around February 28th.

What does this mean for crypto?

Over time, the numbers continued to increase — particularly the death count. In response, investors started reacting more strongly. Also, professors state that this was the period when the number of new infections started to slow down. In other words, investors did not abandon crypto because they lost faith in it. Instead, they believed that traditional markets will start to recover.

But, even though the number of infections once again started surging, investors did not go back to cryptos. The paper concluded that, in one way, this shows that the crypto market might act as a source of systemic risk for the traditional financial system. At least when it comes to times of crisis. This is also confirmed by the fact that crypto is now more interconnected with financial institutions.

The crypto market does not respond to the crisis in a linear way, which is why regulation needs to be targeted. This is very time-sensitive, as too early or too late interventions could be counterproductive. Even so, the final conclusion is that crypto can be a viable lifeline for investors in times of stress and economic difficulty.