![The market capitalization of the global cryptocurrency market and top 5 cryptocurrencies during 2016-2022. (Source: built on the basis of [11])](https://www.researchgate.net/profile/Antonina-Sholoiko/publication/368849460/figure/fig1/AS:11431281122864023@1677579533927/The-market-capitalization-of-the-global-cryptocurrency-market-and-top-5-cryptocurrencies_Q320.jpg)
![Segmentation of the cryptocurrency market. (Source: compiled on the basis of [33, 43])](https://www.researchgate.net/profile/Antonina-Sholoiko/publication/368849460/figure/tbl1/AS:11431281122875971@1677579534575/Segmentation-of-the-cryptocurrency-market-Source-compiled-on-the-basis-of-33-43_Q320.jpg)
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ФІНАНСОВО-КРЕДИТНА ДІЯЛЬНІСТЬ: ПРОБЛЕМИ ТЕОРІЇ ТА ПРАКТИКИ
Том 1 (48), 2023
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DOI: 10.55643/fcaptp.1.48.2023.3949
CRYPTOCURRENCY MARKET TRANSFORMATION
DURING THE PANDEMIC COVID-19
ABSTRACT
The pandemic and subsequent changes in various spheres of human activity have also
transformed consumer behavior, particularly in the cryptocurrency market. The article
is aimed at identifying the priority directions of transformations taking place in the cryp-
tocurrency market in the conditions of the Covid-19 pandemic under the influence of
certain groups of factors. System and network approaches to understanding the cryp-
tocurrency market have been identified. The cryptocurrency market is considered from
a functional and institutional point of view. From a functional point of view, the crypto-
currency market is a set of economic relations in cyberspace regarding cryptocurrency
mining, initial coin offering (ICO) and circulation of cryptocurrencies based on the laws
of supply and demand. From an institutional point of view, the cryptocurrency market
is a set of participants in virtual currency schemes who carry out cryptocurrency trans-
actions. The following signs of cryptocurrency market segmentation are justified such
as those depending on the market capitalization of the cryptocurrency; on the nature
of the crypto asset's movement; on operations carried out on the market; on the region;
on consumers of services. Factors that influence the functioning of the cryptocurrency
market are systematized according to the following groups: macroeconomic, price, en-
vironmental, geographic, market, behavioral and technological. The influence of gold,
oil prices, the daily number of Covid-19 cases and deaths from Covid-19, the MSCI ACWI
global stock index, the iShares MSCI All Country Asia ex Japan ETF, the Wilshire 5000
Total Market Index on the Bitcoin exchange rate is revealed. The trends in the crypto-
currency market development in the post-war period are justified, namely the growth
of investors' interest in cryptocurrencies against the background of the initial coin offer-
ing collapse; growth of payments in cryptocurrencies; strengthening the regulatory
landscape on a global and national scale; integration of the cryptocurrency market with
traditional finance; attracting non-typical participants to the cryptocurrency business;
expansion of participants in the infrastructure of the cryptocurrency market due to the
rapid cryptocurrency market development, in particular, due to the production of equip-
ment for its operation.
Keywords: cryptocurrency, Bitcoin, mining, crypto assets, cryptocurrency business
JEL Classification: E49, E51, P44, O31
INTRODUCTION
The Covid-19 pandemic, declared by the World Health Organization, created challenges
not only for the health sector, but also affected sales, production, logistics, and unem-
ployment. The pandemic and subsequent changes in various spheres of human activity
have also transformed consumer behavior, particularly in financial markets. The uncer-
tainty caused by the COVID-19 pandemic is contributing to the increased volatility and
unpredictability of financial markets. Due to the increased access to high-speed Inter-
net, the consumers’ propensity for digital financial services and currencies is growing.
This gives a powerful impetus to the development of the crypto economy, a component
of which is the cryptocurrency market. The pandemic accelerated the digitalization of
financial transactions (Mazaraki et al., 2021; Volosovych et al., 2021) and reduced cash
circulation. And although the pandemic is currently causing certain problems in the
functioning of financial systems, it is likely that in the long term, it may have a positive
effect. Both consumers and providers of financial services are beginning to realize the
potential of using FinTech tools. At the same time, cryptocurrency is gaining more and
DOI: 10.55643/fcaptp.1.48.2023.3949
Svitlana Volosovych
D.Sc. in Economics, Professor of the
Department of Finance,
State University of Trade and
Economics, Kyiv, Ukraine;
ORCID: 0000-0003-3143-7582
Antonina Sholoiko
D.Sc. in Economics, Associate
Professor of the
Department of Insurance, Banking and
Risk-management,
Taras Shevchenko National University
of Kyiv, Kyiv, Ukraine;
e-mail: sholoiko@ukr.net
ORCID: 0000-0003-1239-4281
(Corresponding author)
Liudmyla Shevchenko
Candidate of Philological Sciences,
Associate Professor of the
Department of Foreign Languages,
Taras Shevchenko National University
of Kyiv, Kyiv, Ukraine;
ORCID: 0000-0002-4543-3876
Received: 20/12/2022
Accepted: 12/01/2023
Published: 28/02/2023
© Copyright
2022 by the author(s)
This is an Open Access article
distributed under the terms of the
Creative Commons CC-BY 4.0
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more popularity in financial transactions. Cryptocurrency, the impetus for which was created by the financial crisis of 2008,
received an increase in interest from consumers of payment services during the pandemic crisis. Changes in traditional
financial markets push investors to diversify their portfolios at the expense of cryptocurrency. In particular, the fall in the
rates of traditional financial assets in the context of the pandemic contributes to the growth of interest in cryptocurrencies
among institutional and individual investors due to the need for a reliable asset so as to preserve value and the ability to
make payments. The sharp increase in demand for financial services with cryptocurrency creates the basis for various
transformations in all segments of the cryptocurrency market.
LITERATURE REVIEW
The growing popularity of cryptocurrencies is causing the expansion of the virtual money market (Volosovych & Baraniuk
(2018). The significant volatility of cryptocurrencies during the pandemic increases the public’s interest in carrying out
transactions in the cryptocurrency market with the aim of receiving income, despite possible financial losses. Nowadays,
the term “cryptocurrency market” appears in many publications. However, its application is often limited to its use in the
title of articles without analyzing its essence (Ji et al., 2019; Lahmiria & Bekiros, 2020; Noda, 2020).
In scientific literature and regulatory acts, more attention is focused on the content of cryptocurrency. Regarding the
essence of the cryptocurrency market, few researchers have paid attention to this issue. In our opinion, system and
network approaches to defining the cryptocurrency market can be distinguished. Within the first approach, Mnif E., Jarboui
A., Mouakharc K. (Mnif et al., 2020) understand cryptocurrency markets as complex systems based on speculation, within
which investors interact on the basis of certain strategies, and it generates certain biases, conditioning endogenous insta-
bility. But here the emphasis is on the secondary cryptocurrency market, without mentioning the primary one. At the same
time, attention is focused only on investment activities in the cryptocurrency market. Kuznyetsova A., Sydorchenko, T.,
Zadvorna, O., Nikonenko, U., Khalina, O. (2021) analyze the use of bitcoin and ethereum cryptocurrencies in the field of
e-commerce in Ukraine. T. Zhelyuk and O. Brechko (2016) somewhat expand the system approach, regarding the crypto-
currency market as a system that combines into one whole all the elements that ensure the release (emission) of crypto-
currencies and their circulation according to the laws of supply and demand among the participants of this market. Here
it should be taken into account that cryptocurrencies appear on the primary market due to their mining or initial placement
of coins (Initial coin offering, ICO). Understanding the cryptocurrency market within the system approach makes it possible
to state that it is a component of the financial market, of course, with a specific object, participants and relationships
among them. David Vidal-Tomás (2021) equates the cryptocurrency market with the cryptocurrency network. Taking into
consideration that cryptocurrency and transactions with it are possible only in cyberspace, this approach follows a certain
logic, despite the fact that the market and the network differ somewhat in their structural elements (Podnos, 2016) and
functions.
Based on the above, the cryptocurrency market can be considered from a functional and institutional point of view. From
a functional point of view, the cryptocurrency market is a set of economic relations in cyberspace regarding cryptocurrency
mining, initial coin offering (ICO) and circulation of cryptocurrencies based on the laws of supply and demand. From an
institutional point of view, the cryptocurrency market is a set of participants in virtual currency schemes who carry out
cryptocurrency transactions. In February 2015, the European Central Bank defined a virtual currency as a digital represen-
tation of value not issued by a central bank, credit organization, or electronic money institution, which can in some cases
be used as an alternative to money ECB (2015). To characterize the mechanism of transactions with virtual currencies,
the European Central Bank used the term "virtual currency scheme(s)", which has two aspects. On the one hand, it shows
the value, on the other hand, it demonstrates integral or built-in mechanisms that ensure the transfer of this value ECB
(2015).
The COVID-19 pandemic affected all areas of human life, in particular, the cryptocurrency market, where according to the
research conducted in 2020-2021, it caused:
▪ increasing volatility. Thus, Lahmiria S. & Bekiros S. (2020) found that the pandemic has a stronger impact on the
cryptocurrency market in this context than on international stock markets, in particular, the stock market;
▪ the growth of its effectiveness, which is proved by the results of research by Mnif E., Jarboui A., Mouakharc K. (2020).
At the same time, Noda A. (2020) notes that the level of efficiency of the Bitcoin market is higher than the level of
efficiency of Ethereum and that cryptocurrency markets with greater liquidity have achieved greater development.
At the same time, Mnif E, Jarboui A., Mouakharc K. (2020) state that Bitcoin was the most effective before the
pandemic; and after the outbreak of COVID-19, Ethereum turned out to be more effective due to the fact, that the
spread of the pandemic increases the effectiveness of all cryptocurrencies;
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▪ there is a convergence between cryptocurrencies with clear technological functions and classifications against the
background of changes in the market microstructure behavior and the introduction of Bitcoin futures contracts by
the Chicago Exchange N., Koutmos D., Payne J. (2021).
AIMS AND OBJECTIVES
The article is aimed at identifying the priority directions of transformations taking place in the cryptocurrency market in
the conditions of the Covid-19 pandemic under the influence of certain groups of factors.
Objectives include revealing the influence of gold, oil prices, the daily number of Covid-19 cases and deaths from Covid-
19, the MSCI ACWI global stock index, the iShares MSCI All Country Asia ex Japan ETF, the Wilshire 5000 Total Market
Index on the Bitcoin exchange rate.
METHODS
To establish the relationship between the daily rate of Bitcoin (Finance, 2021) and the prices of gold (dollar per troy ounce)
(Gold, 2021), oil (dollar per barrel) (Eia, 2021), the number of cases of Covid-19 and deaths from Covid-19 (Pkgstore,
2021), MSCI ACWI (Sg, 2021), iShares MSCI All Country Asia ex Japan ETF (Finance, 2021a), iShares Core MSCI Europe
ETF (IEUR) (Finance, 2021b), Wilshire 5000 Total Market Index (Finance, 2021c), iShares MSCI China ETF (Finance,
2021d) the Granger test was used. The research period was from January 1, 2020, to September 7, 2021, the time when
the pandemic began and reached its peak. The choice of this period was due to the beginning of the pandemic and its
greatest spread, which allows to identify or refute cause-and-effect relationships. The Granger test gives the possibility to
define the null hypothesis "X is not the cause of Y". The criterion for accepting the hypothesis is the P-value (if P is less
than 0.05, then the null hypothesis is rejected). A reverse check is simultaneously carried out. Granger tests were per-
formed for 15 lags. The Granger causality calculation was carried out in the Spyder software environment.
RESULTS
The development of the cryptocurrency market in the conditions of the Covid-19 pandemic varies according to its seg-
ments. The segmentation of the cryptocurrency market is not clearly traced in the scientific literature. The Research and
Market study carried out in 2020 was based on the segmentation of the cryptocurrency market according to the following
criteria: geography, design goals, and market capitalization (GlobeNewswire, 2020). In 2021, the market is segmented on
the basis of applications, products and components, technologies, geography Research and Markets (2021). Markets and
Markets (2021) offers to analyze the cryptocurrency market according to end-user industries; programs used; cryptocur-
rency type; cryptocurrency profitability and geographic location of markets.
Table 1 represents the systematization of the mentioned approaches with the authors’ clarifications and additions to the
existing criteria for the cryptocurrency market segmentation and its types.
Table 1. Segmentation of the cryptocurrency market.
(Source: compiled on the basis of [33, 43])
Segmentation criteria
Market segment
Depending on the market capitalization of the cryptocurrency
▪ Bitcoin market (BTC)
▪ Ethereum market (ETH)
▪ Binance Coin market (BNB)
▪ Dogecoin market (DOGE)
▪ XRP market
▪ Tether Market (USDT)
▪ Cardano Market (ADA)
▪ Market of other cryptocurrencies
Depending on the nature of the crypto asset’s movement
Primary market of cryptocurrencies
Secondary market of cryptocurrencies
▪ Mining
▪ ІСО
▪ Exchange cryptocurrency market
▪ OTC cryptocurrency market
Depending on the operations carried out on the market
▪ Mining
▪ Payments
▪ Trade
▪ Investments
▪ Transfer
Depending on the region
▪ Global cryptocurrency market
▪ Regional cryptocurrency market
Depending on the consumers of services
▪ The segment of clients-individuals
▪ Segment of corporate clients
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As can be seen from Figure 1, during July 2016 to June 2021, the global cryptocurrency market grew. This trend is
especially clear during the Covid-19 pandemic. Thus, if on July 24, 2019, this indicator was USD 235.5 billion, then on July
29, 2020, it showed USD 274.4 billion and on June 20, 2021, there was an increase up to USD 1.3 trillion (bln) (Coinmar-
ketcap, 2021). At the same time, it is expected that due to the application of blockchain technology and the growth of
venture capital investments, the global cryptocurrency market will grow to USD 2.2 trillion (bln) dollars USA in 2026
(Research and markets, 2021). Figure 1 shows that during 2016-2022 the Bitcoin market was the leader in capitalization.
The second position is confidently occupied by Ethereum. Other cryptocurrencies from the TOP-5 in 2022, compared to
2021, slightly changed their positions.
Figure 1. The market capitalization of the global cryptocurrency market and top 5 cryptocurrencies during 2016-2022.
(Source: built on
the basis of [11])
The development of the cryptocurrency market is influenced by a system of various factors. Ji Q., Bourid E., Roubaude D.,
Kristoufek L. (2019). emphasize the interdependence of the energy, commodity, and cryptocurrency markets. In our opin-
ion, the factors influencing the cryptocurrency market functioning can be divided into the following groups:
▪ macroeconomic;
▪ price;
▪ ecological;
▪ geographical;
▪ market;
▪ behavioral;
▪ technological.
Figure 2 shows the specifics of the cryptocurrency market functioning in pandemic conditions. Thus, there is a significant
transformation of the macroeconomic environment, reinforced by social distancing and quarantine restrictions, which led
to a drop-in world and domestic gross products, production, household incomes, and an increase in inflation. Undoubtedly,
this has a powerful impact on all areas of human life as a whole and on the formation of the cryptocurrency market
landscape.
The price factors influencing the cryptocurrency market include:
▪ the price of gold;
▪ exchange rate of certain national currencies, in particular, the USD;
▪ electricity price;
▪ prices for cryptocurrency mining equipment.
Zhu Y., Dickinson D., Li. J. (2017) found that the most significant influence on the Bitcoin rate in the pre-pandemic period
was the price of gold and the rate of the USD due to the fact that they have the same trend in the short term and different
trends in the long term. The findings of their research showed that the prices of gold and Bitcoin decreased because of
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200000
400000
600000
800000
1000000
1200000
1400000
0
100000
200000
300000
400000
500000
600000
700000
800000
July 20, 2016 July 26, 2017 July25, 2018 July 24, 2019 July 29, 2020 July 20, 2021 June 24, 2022
Bitcoin Ethereum Tether XRP Litecoin overall cryptocurrency market cap
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the growth of the US economy and the strengthening of the USD, which causes a decrease in the public interest to invest
in gold (Zhu et al., 2017). Electricity and equipment prices are related to cryptocurrency mining costs. The process of
producing cryptocurrency coins got its name by analogy with the mining of gold or other minerals. Thus, miners are
compared to prospectors when selecting the right combination of numbers for the crypto coin formation. Miners are not
cryptocurrency issuers in the legal sense of the word, as they have not been authorized by anyone to create the currency.
The energy consumption of this type of activity tends to increase. Thus, in 2018, according to some estimates, about 67
terawatt-hours per year were consumed during Bitcoin mining, as it was approximately done by the population of the
Czech Republic with more than 10 million people (Malanov & Lurie, 2019). Already in 2019, this indicator amounted to 73
terawatt-hours, which can be compared with the electricity consumption by the population of Austria with a larger popu-
lation (Kuzyuk, 2019). Mining requires powerful computers that consume a lot of electricity. As a result, the cost of elec-
tricity in the country is an important factor affecting the profitability of this activity. The most profitable is mining in
Venezuela, where mining 1 bitcoin costs USD 531 Zakon (2018), which is explained by the fact that the state subsidizes
electricity generation.
Cryptocurrency market
Primary
Pandemic
market
Cryptocurrency exchanges
ІСО
Mining
Covid-19
OTC cryptocurrency
Secondary
Price factors Market
factors Macroeconomic
factors
Environmental
factors
Development trends of
the cryptocurrency
market:
- growing investors
interest
- ICO compression
- growth of payments in
cryptocurrencies
- strengthening of the
regulatory landscape
- integration of the
cryptocurrency market
with traditional finance
- expansion of the circle
of cryptocurrency
market participants
Peculiarities of the
cryptocurrency market
during the pandemic:
- increasing volatility
- increasing efficiency
- convergence of
cryptocurrencies
Geographical
factors Behavioral
factors Technological
factors
Figure 2. The specifics of the cryptocurrency market functioning in the conditions of the pandemic.
Geographical risks relate to the concentration of mining and equipment manufacturing in China. The largest manufacturers
of Bitmain, Canaan Creative and Ebang cryptocurrency mining equipment are located in this country. This may lead to a
crisis in this component of the cryptocurrency market.
Although the concept of the cryptocurrency virtual nature dominates today, its destructive impact on the environment is
observed due to the consumption of significant amounts of electricity during mining. Even though the physical damage at
the site of the mining farms is minimal, the indirect environmental damage due to the consumption of electricity is not
controllable in contrast to economic entities involved in the extraction of minerals or a certain type of production. A 2020
study by researchers at Dublin City University, Trinity College Dublin, and the University of Southampton found that cryp-
tocurrency mining is a factor affecting prices in the electricity and utility markets (Laurent, 2021).
According to some estimates, thermal power plants that produce energy for mining emit about 35 tons of СО2 into the
atmosphere annually, or about 308 tons per Bitcoin transaction (Kuzyuk, 2019). Only 28% of the energy consumed in
global cryptocurrency mining is produced from renewable sources (Kuzyuk, 2019). The largest contribution to environ-
mental pollution is made by Chinese miners, whose share in carbon dioxide emissions is 47%. Although China’s role in
СО2 emissions into the atmosphere should decrease, given that in 2007 the share of thermal power plants operating on
coal was 80%, and by 2040 they are planned to be reduced to 40%, as currently in Germany (Kuzyuk, 2019). Additionally,
according to some estimates, Bitcoin mining could increase the Earth’s temperature by 2° by 2033 (Hightech, 2018). The
negative impact of cryptocurrency mining on the environment is uneven. In countries with a significant share of coal-fired
power plants, pollution levels are higher, particularly in China. In Iceland and Norway, where nearly 100% of all energy
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production is renewable, cryptocurrency miners take advantage of cheap hydroelectric and geothermal energy to power
their machines. Low temperatures in Nordic countries cause cost reductions as a result of the natural cooling of computer
servers. In 2020, according to a Cambridge University study, about 39% of the electricity used in Bitcoin mining is gener-
ated from renewable sources (Hazlewood, 2018). It should also be noted that specialized equipment is used for mining,
in particular, reserve blocks that require annual renewal. As a result, about 11,500 tons of hazardous e-waste are generated
annually (Howson, 2021).
Among the market factors which influence the functioning of the cryptocurrency market, such factors as the stock market,
the supply of cryptocurrencies, and the effectiveness of operations carried out on the market should be highlighted.
Volatility in financial markets causes the transformation of investments from shares to safer savings, in particular, cash
and gold. Although Bianchi D., Guidolin M. & Pedio M. (2020), Kuznyetsova A., Sydorchenko, T., Zadvorna, O., Nikonenko,
U., Khalina, O. (2021) insist on the absence of a systematic influence of such factors as the stock market and the gold
market, in the conditions of the pandemic, a certain connection is still observed. The results of research by Arias-Oliva M.,
Pelegrín-Borondo J., Matías-Clavero G. (2019) show a significant influence on the decision to invest in cryptocurrency due
to the expected effectiveness of this operation.
A powerful factor influencing the state of the cryptocurrency market is the supply of cryptocurrencies, in particular, Bitcoin.
Halving the reward for adding a new block when mining bitcoins, which is determined by the halving procedure embedded
in the network protocol, slows down the process of creating new blocks. On May 11, 2020, the third bitcoin halving took
place, which reduced the mining reward from 12.5 bitcoins per block to 6.25 bitcoins. After 21 million Bitcoins are created
(estimated in 2140), their mining will be stopped. In the context of the pandemic, due to the increasing efficiency of
cryptocurrency markets compared to the gold market, and the limited supply of Bitcoin, cryptocurrency becomes a powerful
investment tool capable of protecting against the volatility of the stock market and becomes a digital form of value preser-
vation (Harper, 2020).
Yang H. (2019) investigated behavioral anomalies in cryptocurrency markets, noting that due to the lack of regulation in
the cryptocurrency market, operations of a speculative nature, which can be characterized as asset pricing anomalies from
the standpoint of the behavioral theory, are carried out. Matselyukh N. (2016, p.53) defines price anomalies as persistent
deviations of the prices of financial instruments from the predicted ones, the size of which allows for generating excess
profits. Based on the classification of price anomalies proposed by Raghubir P. & Das S. (1970), it can be assumed that
their impact on the cryptocurrency market is enhanced by the fact that it is characterized by volatility and significant
profitability in pandemic conditions.
Technological factors affecting the cryptocurrency market should include technology changes; conditions that facilitate
operations on the financial market, and technical capabilities of national energy systems.
Unlike physical goods, changes in technology affect the prices of cryptocurrencies. In July-August 2017, the price of Bitcoin
was negatively affected by controversy about changing the basic technology to improve transaction times. After the
changes were completed, the price of Bitcoin rose from USD 2,700 up to USD 4000 in just two weeks. Conversely, reports
on hacking often lead to lower prices (Mazer, 2021). The results of the research conducted by Arias-Oliva M., Pelegrín-
Borondo J., Matías-Clavero G. (2019) testify to the significant influence of conditions that facilitate the implementation of
transactions in the financial market on the decision-making process regarding transactions with cryptocurrency. The tech-
nical capabilities of national power systems to support mining will not be able to provide the miners’ need for electricity
under certain conditions. The growth of cryptocurrency mining may, according to various estimates, lead to an energy
crisis. Thus, in June 2019, Iran blocked cryptocurrency mining due to problems in the energy market.
The application of the Granger test made it possible to establish that the course of Bitcoin in the conditions of the Covid-
19 pandemic during January 2020-September 2021 largely depends on the prices of gold, oil, the daily number of patients
with Covid-19 and deaths from Covid-19, the index world shares MSCI ACWI, iShares MSCI All Country Asia ex Japan ETF,
Wilshire 5000 Total Market Index. At the same time, the Bitcoin exchange rate influenced the price of gold (Table 2).
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Table 2. Results of the pairwise Granger test for all variables for 1.01.2020-7.09.2021 (rows are Y-variables, and columns are X-varia-
bles).
(Source: calculated on the basis of [14; 15; 16; 17; 18])
Rate
BTC/USD
gold
price,
$/o.z.
crude
oil WTI,
$/br.
daily
worldwide
new covid
cases
daily
worldwide
new covid
deaths
MSCI
ACWI
iShares
MSCI All
Country
Asia ex
Japan
ETF
iShares
Core
MSCI
Europe
ETF
Wilshire
5000 To-
tal Mar-
ket In-
dex (US
stock
market)
iShares
MSCI
China
ETF
(MCHI)
Course
BTC/USD
1
0.523
0.6381
0.2101
0.0653
0.103
0.0278
0.0938
0.1
0.0276
Gold price,
USD/o.z.
0.7382
1
0.2894
0.2746
0.1144
0.013
0.121
0.0005
0.0322
0.1462
Crude oil WTI,
USD/br.
0.0002
0.0049
1
0.0263
0.0005
0
0
0
0
0.0078
Daily world-
wide new
covid cases
0
0
0
1
0
0
0
0
0
0
Daily world-
wide new
covid deaths
0
0
0
0
1
0
0
0
0
0
MSCI ACWI
0.1308
0.0122
0.0047
0.0979
0.0275
1
0.022
0
0.028
0.3996
iShares MSCI
All Country
Asia ex Japan
ETF
0.463
0.026
0.0244
0.0131
0.0012
0
1
0.0005
0
0.0551
iShares Core
MSCI Europe
ETF
0.0174
0.0571
0.0895
0.0342
0.01
0
0.1414
1
0.0001
0.3245
Wilshire 5000
Total Market
Index
0.2361
0.0052
0.0071
0.1204
0.026
0.1034
0.0805
0.0011
1
0.482
iShares MSCI
China ETF
(MCHI)
0.0916
0.008
0.2043
0.025
0.0059
0.0008
0.0063
0.0025
0.0003
1
Of course, the specifics of the cryptocurrency market development during the pandemic will to some extent shape its post-
covid landscape with the continuation of certain trends. Among the development trends of the cryptocurrency market, in
our opinion, it is worth highlighting:
▪ growing investors’ interest in cryptocurrencies due to the ICO collapse;
▪ growth of payments in cryptocurrencies;
▪ strengthening of the regulatory landscape on a global and national scale;
▪ integration of the cryptocurrency market with traditional finance;
▪ expansion of participants and infrastructure of the cryptocurrency market, due to the rapid cryptocurrency market
development, in particular, the production of equipment for its operation.
DISCUSSION
Despite the instability and high level of risk of cryptocurrency transactions, investors continue to invest in crypto assets
during the pandemic. Research in behavioral finance suggests that people tend to convert all liquid assets into cash to be
prepared for a future crisis (Muhn, 2020). After reaching a market value of USD 1 trillion, Bitcoin has gained popularity
among the largest Wall Street banks and Fortune 500 companies (Browne, 2021). In May 2021 the oldest American bank
Bank of New York Mellon Corp. declared its readiness to carry out transactions with cryptocurrencies in the interests of its
clients (Mind, 2021). Due to the weak correlation of cryptocurrency with traditional and alternative asset classes in the
conditions of the pandemic, it becomes an ideal diversifier of the investment portfolio. A study conducted by the Frankfurt
School of Finance and Management and the German company Iconic Holding, which carries out cryptocurrency operations,
proves that having 1-5% of cryptocurrency in an investment portfolio will not only bring additional profits but also signifi-
cantly increase the Sharpe ratio and profitability (Muhn, 2020).
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The growing interest of investors, in particular, institutional investors, in cryptocurrencies in the context of the pandemic
influenced their rate increase. According to forecasts of JPMorgan, against the background of bitcoin’s competition with
gold as a potential protection of investments against inflation in the conditions of the pandemic, the bitcoin rate may rise
to USD 146,000 (Browne, 2021). The information about Tesla’s USD 1.5 billion investment in Bitcoin (Biers, 2021) raised
its rate to a record. At the same time, with the sale of 10% of bitcoins in the amount of USD 272 million at the end of
March 2021, Tesla earned a profit of USD 101 million, which affected the growth of the company’s quarterly profit by 27
times, which in turn determined the growth of its exchange rate (Prime, 2021). In early June 2021, the value of Bitcoin
decreased by 3% after a short message by Elon Musk on Twitter, containing the word Bitcoin, its image and a broken
heart (Ixbt, 2021), which once again confirms the influence of behavioral factors on the cryptocurrency market. There are
suggestions that the enthusiasm of cryptocurrency investors may have some social impact. Thus, 94% of German investors
who have invested 50-75% of their net assets in Bitcoin report a deterioration in personal relationships due to their
investment (Lulay, 2021).
In the post-COVID period, the trend of interest in cryptocurrency payments should continue. Although approximately 60%
of Bitcoin is owned by individuals or companies that have never sold more than 25% of their Bitcoin, and only 19% of
Bitcoin is used for trading (Bambrough, 2020), cryptocurrency payment services have begun to expand significantly during
the pandemic. Thus, PayPal stated that it allowed its users to make payments in Bitcoin as well as other cryptocurrencies
such as Ethereum and Litecoin (Sotinel, 2020). At the same time, Tesla announced its readiness to accept cryptocurrency
from buyers of its electric cars (Biers, 2021). In May 2021, American collection car auction company Mecum Auction began
accepting payments in Bitcoin, Bitcoin Cash, Ethereum, Dogecoin and stablecoins USD Coin (USDC), Dai (DAI), Gemini
Dollar (GUSD), Paxos Standard (PAX) and Binance USD (BUSD) via BitPay (Thepaypers, 2021a). In July 2021, Hong Kong-
based The Pavilions Hotels and Resorts, which partners with global cryptocurrency payment gateway Coindirect, enabled
its customers to pay for hotel reservations using Bitcoin, Ethereum and 40 other virtual currencies 24/7 (The Paypers,
2021b).
The Consumer Adoption Report 2021 “Cryptocurrencies in Retail” compiled by CryptoRefills Labs Big Dream Ventures BV
states that 63% of cryptocurrency buyers use it to make payments (of which 35% do so weekly and 40% monthly), while
72.4% of users believe in the further spread of crypto payments in the future (Cabuk & Silenzi, 2021).
The Covid-19 pandemic will accelerate the integration of the cryptocurrency market with traditional finance. In June 2021,
the Spanish bank Banco Bilbao Vizcaya Argentaria (SABBVA.MC) said it was starting to provide Bitcoin trading and storage
services to private banking clients in Switzerland, where it operates through a franchise. SABBVA.MC limits these services
exclusively to Switzerland, motivating it by the appropriate level of regulation of cryptocurrency transactions in this country
due to the significant demand for such services. From July 2021, the American pension fund ForUsAll, which manages
assets in the amount of more than USD 1.7 billion for more than 70,000 employees of small and medium-sized businesses,
in cooperation with the cryptocurrency platform Coinbase, created the opportunity to invest up to 5% of employee retire-
ment funds in Bitcoin and Ethereum within the Alt 401 (k) pension plan. The fee will be 0.5% for transactions and crypto
assets management (Khatri, 2021).
The expansion of payments in cryptocurrency, increased investors’ interest and the inclusion of cryptocurrency operations
by banks in their services to some extent have caused the transformation of the global and national regulatory landscape.
The Basel Committee on Banking Supervision noted that the growth of cryptocurrency risks, despite their limitations for
banks, may result in increased risks of fraud, cyber-attacks, money laundering and terrorist financing. To prevent global
financial instability, in June 2021 it proposed a two-pronged approach to capital requirements for crypto assets held by
banks, which caused Bitcoin to rise by 1.5% (Jones & Wilson, 2021).
El Salvador has become the first country in the world to accept Bitcoin as a legal means of payment amid warnings from
many central banks about the risks of cryptocurrency transactions (Bbc, 2021). Meanwhile, in May 2021 the National
Internet Finance Association of China, the China Banking Association and the China Payment Clearing Association in a joint
statement banned financial institutions and payment companies from providing services related to cryptocurrency trans-
actions and warned investors against speculative cryptocurrency trading (Aljazeera, 2021). Argentina’s tax authority has
ordered cryptocurrency exchanges to submit data on their customers’ transactions in monthly reports. Exchanges must
identify the owners of cryptocurrency accounts and report on open accounts and the movement of funds to them on a
monthly basis (The Paypers, 2021c). Due to the strengthening of global and national regulation of the cryptocurrency
market, its participants are adapting their strategies of behavior on the market. Their associations are being created to
protect the interests of crypto investors, and former employees of financial regulators are being hired. Thus, the crypto-
currency exchange Coinbase, together with the investment companies Fidelity Investments, Paradigm and the financial
ФІНАНСОВО-КРЕДИТНА ДІЯЛЬНІСТЬ: ПРОБЛЕМИ ТЕОРІЇ ТА ПРАКТИКИ
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provider Square, created the “Crypto Council for Innovation” association. The policy of lobbying the interests of cryptocur-
rency exchanges is now actively pursued by cryptocurrency market players in India (Asokan, 2021).
The rapid development of the cryptocurrency market also led to the expansion of its infrastructure, in particular, the
production of equipment for its operation. According to some data, the global market for cryptocurrency mining equipment
will grow by USD 2.8 billion by 2024 (Rahul, 2021).
The pandemic contributed to the attraction of non-typical participants to the cryptocurrency business. Thus, in particular,
in Vietnam, Internet cafe owners, due to the suspension of their activities as a result of quarantine restrictions, began to
use computer equipment for mining cryptocurrencies (THG, 2021).
CONCLUSIONS
This study reveals the priority directions of cryptocurrency market transformations against the background of the Covid-
19 pandemic under the influence of various factors. In order to identify structural changes in the cryptocurrency market
in the conditions of the Covid-19 pandemic, its segmentation was carried out depending on the market capitalization of
the cryptocurrency; the nature of the crypto asset’s movement; operations carried out on the market; on the region; on
consumers of services. At the same time, it was facilitated by the cryptocurrency market analysis in the functional and
institutional aspects.
To illustrate the transformational processes taking place in the cryptocurrency market due to the increased volatility and
unpredictability of financial markets, such groups of factors influencing its development as macroeconomic, price, environ-
mental, geographic, market, behavioral and technological were identified.
This analysis proved the dependence of the exchange rate of Bitcoin, as the largest cryptocurrency by capitalization, in
the conditions of the Covid-19 pandemic during January 2020-September 2021, on the prices of gold, oil, the number of
daily detected cases of Covid-19 and deaths from Covid-19, the index of world shares MSCI ACWI, iShares MSCI All Country
Asia ex Japan ETF, Wilshire 5000 Total Market Index. At the same time, the Bitcoin rate affected the price of gold. The
results are proved on the basis of Granger test calculations.
The revealed specificity of the cryptocurrency market development during the pandemic made it possible to formulate the
following trends of the cryptocurrency market development in the post-COVID period, in particular, the growth of investors'
interest in cryptocurrencies due to the ICO collapse; growth of payments in cryptocurrencies; strengthening the regulatory
landscape on a global and national scale; integration of the cryptocurrency market with traditional finance; attracting non-
typical participants to the cryptocurrency business; expansion of participants and infrastructure of the cryptocurrency
market, due to the rapid cryptocurrency market development, in particular, the production of equipment for its operation.
In conclusion, the cryptocurrency market in pandemic conditions creates both challenges (environmental, regulatory, con-
sumer protection) for society and opportunities for further development of financial services as well as integration of the
cryptocurrency market with the traditional financial system.
Further efforts should establish new measures to limit the impact of cryptocurrency risks on the functioning of financial
systems.
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Волосович C., Шолойко А., Шевченко Л.
ТРАНСФОРМАЦІЯ КРИПТОВАЛЮТНОГО РИНКУ В УМОВАХ ПАНДЕМІЇ COVID-19
Пандемія та викликані нею зміни в різних сферах життєдіяльності людини трансформували й поведінку споживачів,
зокрема й на криптовалютному ринку. Метою є виявлення пріоритетних напрямів перетворень, що відбуваються на
криптовалютному ринку в умовах пандемії Covid-19 під впливом певних груп чинників. Виявлено системний та ме-
режеві підходи до розуміння криптовалютного ринку. Запропоновано розглядати криптовалютний ринок із функці-
ональної та інституційної точок зору. Обґрунтовано ознаки сегментації криптовалютного ринку: залежно від ринко-
вої капіталізації криптовалюти; від характеру руху криптоактивів; від операцій, що здійснюються на ринку; від ре-
гіону; від споживачів послуг. Систематизовано чинники впливу на функціонування криптовалютного ринку на ос-
нові виокремлення таких їх груп: макроекономічні, цінові, екологічні, географічні, ринкові, поведінкові, технологічні.
Виявлено вплив на курс Bitcoin-цін на золото, нафту, щоденної кількості захворілих на Covid-19 та померлих від
Covid-19, індексу світових акцій MSCI ACWI, iShares MSCI All Country Asia ex Japan ETF, Wilshire 5000 Total Market
Index. Обґрунтовано такі тенденції розвитку криптовалютного ринку в постковідний період, як зростання зацікав-
леності інвесторів криптовалютами на тлі згортання первинного розміщення монет; зростання платежів у крипто-
валютах; посилення регуляторного ландшафту в глобальному та національному масштабі; інтеграція криптовалю-
тного ринку з традиційними фінансами; залучення до криптовалютного бізнесу нетипових учасників; розширення
учасників інфраструктури криптовалютного ринку, зумовленого бурхливим розвитком криптовалютного ринку, зо-
крема виробництва обладнання для його функціонування.
Ключові слова: криптовалюта, біткоїн, майнінг, криптоактиви, криптовалютний бізнес
JEL Класифікація: E49, E51, P44, O31
