The economic fallout from COVID-19 continues to prompt a historic level of dislocation across all asset classes. Stocks are on track for record declines, currencies are whipsawing and even bond markets have seen a surge in volatility.

Cryptocurrency hasn’t been immune to the selloff, but the asset class continues to warrant plenty of discussion among analysts and commentators.

For example, whether Bitcoin will function as a store of value — the digital currency equivalent of gold — in an environment where major governments are announcing plans for unprecedented spending measures to keep their economies afloat.

For an update on the sector, Stockhead recently caught up with Caroline Bowler, the new CEO of Melbourne-based cryptocurrency exchange BTC Markets.

As the market continues to develop, Bowler said one of her primary focus areas is on the broader regulatory backdrop, which will govern how digital assets continue to integrate with traditional financial markets.

And she pointed to a number of recent examples which show evidence of continued activity in the space:

– A January report from the European Securities and Markets Authority (ESMA), where it highlighted plans to establish clearer regulatory parameters around digital assets;
– The tabling this month of the “Crypto-Currency Act of 2020” to US Congress which attributes regulatory oversight for different aspects of the crypto market to various federal agencies; and
– Continued efforts to integrate crypto payments, such as US crypto-custody platform Bakkt setting up direct payment integration with the Starbucks coffee chain.

“I think it’s important to build out the legal platform for cryptocurrency because one you establish regulation, that gives people a framework to start shaping their business models,” Bowler said.

“Remember that the BTC Whitepaper (setting out the structure and cryptography behind Bitcoin) was only released in 2008. So I think in that context, the speed with which the market and regulatory framework has developed is actually quite phenomenal.

“But I think what’s important now is that while aspects of this asset class mirror traditional financial services, it needs to be built out with a unique flavour.

“There are characteristics of digital assets which are distinct from traditional markets. So it’s still early stages, and there’s a lot more growth to come in this space.”

As a fledgling asset class, the crypto market has long been known for its volatility. And accompanying the crash in stocks which commenced in the last week of February, Bitcoin prices slumped from around $US10,000 ($17,000) to a low of $5,000 ($8,600).

BTC/USD price chart. (Source: Bloomberg)

For Australian crypto traders, some of those swings have been even more drastic against the Aussie dollar, which has come under heavy selling pressure in the risk-off environment.

But amid another sharp decline in stocks overnight, crypto prices bounced off the mat as BTC surged back above $US6,000 ($10,400).

And whether traders are flocking back to Bitcoin as a store of value or looking to profit from increased volatility, Bowler said the COVID-19 crisis has acted as a catalyst for increased activity.

“I think with the COVID-19 crisis, we’ve certainly seen crypto prices react in line with major global markets to major unexpected events, such as when the US announced its travel ban from Europe,” she said.

“But in comparison to past volatility in the asset class, I think crypto markets have remained relatively stable.”

“And from a volume point of view, it’s been a lot higher. We’ve seen total daily trading volumes reach up to $20m — not every day, but it’s been a consistently high volume. And trading pairs across all four of our major alt-coins have broken the previous volume records set in June 2019.”

The exchange has also had to ramp up its compliance efforts, amid an increase in both the number of new customers and people wanting to reopen dormant accounts.

Looking ahead, Bowler said she’s looking forward to how the regulatory developments will also extend to activity on crypto exchanges, where the bulk of trade is carried out on exchanges that aren’t registered in developed-market jurisdictions.

“Roadmaps for how to apply digital regulatory frameworks to crypto exchanges are being introduced,” Bowler said. “But this is a completely different asset class, and while there’s a number of frameworks I don’t think it will be a ‘one size fits all’ approach.”