The recent sell-off was “no ordinary” Bitcoin price drop, suggests the drastic changes in the usage patterns of different types of cryptocurrency businesses.
During the week of March 19, as COVID-19 pandmeic intensified, crypto exchanges saw the largest ever bitcoin inflow which was 9x the daily BTC average amount.
Professional traders and investors were responsible for the majority of the 37% drop in bitcoin price. However, the majority of available bitcoin wasn’t cashed out as hodlers held onto their confidence in the crypto asset.
However, some ripples were seen in the services that use bitcoin. The amount of bitcoin sent to merchant services, gambling services, and darknet markets dropped significantly, reported Chainalysis.
Darknet market activity takes a hit
Darknet markets are reacting to BTC prices like never before. Historically, darknet market activity were much less affected by the ebbs and flows of the market but this time the correlational relationship has reversed.
In mid-March when the Bitcoin price dropped from $10,500 in mid-February to $3,850, so did the value of Bitcoins sent to the darknet market, which went from $4.1 million to $3.2 million.
This drop in darknet activity came after rising to more than $5 million in the final quarter of 2019. At that time, the price of the digital asset fell 13% to $6,400.
Chainalysis says given the public health crisis, people might not be buying as many drugs, also vendors might have slowed down their sales due to price drop out of fear that BTC would be worthless one day. Disruptions to the global supply chain could also be hampering these vendors’ ability to do business.
But as China recovers from the COVID-19 outbreak, the darknet purchasing appears to be picking up as well.
Merchant and Gambling services affected too
During this time, merchant services remained “surprisingly resilient.” These services allow conventional businesses to accept BTC from customers to make purchases which is typically highly correlated with price.
While merchant services purchasing dropped, it wasn’t as much as expected. This could be because crypto users are buying essentials that they can’t get elsewhere with fiat currency. Also, local business closures due to coronavirus could have augmented the need for these services.
As for crypto-based gambling services, they recorded a dip in activity but it was unrelated to the price drop. Bitcoin flows to gambling services have been dropping since the week of March 9 but not until sometime after the price drop. They continued to fall even when the BTC price started to recover.
This could very well be a non-crypto event as gambling activity changes during the recession due to large variance in consumer behavior.