Cryptocurrency and the coronavirus

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"Bitcoin logo on smartphone screen over the face masks. Covid-19 effects on online business" by wuestenigel is licensed under CC BY 2.0 

The coronavirus pandemic has turned the world on its head, even as we approach 2021 we’re still very much in the midst of it and businesses are suffering, in some cases there has been irreversible damage.

While the details of banks' valuations decreasing aren’t entirely clear, it doesn’t look good on the face of things. Many investors are turning away from traditional stocks and going back to older markets such as gold. Seemingly, nobody is able to avoid the plight of the pandemic, but some markets seem to be evading it. 

As the world struggles to stay above water, Bitcoin and other major cryptocurrencies are seeing an influx in investors as mainstream investment companies show an interest in digital currency. As fluctuations and uncertainty in the markets force financiers to look elsewhere.

Why have cryptocurrencies thrived during the pandemic? 

Cryptocurrency is appealing because investors are concerned about the strength of the dollar on the market. Cryptocurrencies offer themselves as a safe-haven currency. Funds can be stored in a relative volatile market, but something that retains its value in the long term and in some cases increases. 

High-profile investors Paul Tudor Jones purchased 21 million Bitcoin tokens back in May. These kinds of large financial moves draw attention from many Vegas sportsbooks, as many people have an vested interest in the outcome of such moves. While cryptocurrencies remain a brave new frontier for many in the financial sector, with moves like this it’s hard to ignore the potential for progress into adopting a centralised digital currency. 

The fall out of the coronavirus affected all kinds of assets, even when liquidating holdings to cash, in some cases investors we’re making losses. Safe haven assets like gold decreased by more than 10% during those extraordinary times. Cryptocurrencies also suffered, there were no exceptions. 

Central banks across the world, including the U.S. The Federal Reserve, scrambled, slashing interest rates and printing out money to constantly increase the circulating supply. It was all rather messy. The difference with a blockchain-based currency is that the law is in the code. Meaning, in situations such as a global pandemic the situation would have played out differently - there is a predetermined supply-demand-relationship. 

Investors have recognised this and over the course of the year we’ve seen a lot of money being invested into crypto assets, which is very positive news for the future of digital currency. Especially, overall we can see that banks stocks have taken a big hit in 2020, with the KBW Nasdaq Bank Index having dropped 33% this year. It reinforces the idea that cryptocurrency could solve a lot of financial problems we see today. 

"Stack of cryptocurrencies" by marcoverch is licensed under CC BY 2.0 

What’s next for crypto?

It’s difficult to predict how things will evolve. There are some that believe the introduction of blockchain-based currency should be something financial institutions and central banks should prioritise. There needs to be solid foundations built around a digital currency to see if the system would be of value to the global market. It’s being done on smaller scales in numerous countries, including Canada, Australia, Sweden, Israel, China and Russia, but things need to be revved up. 

This idea is already gaining traction within people in high places. With the U.S. Congressman Tom Emmer stated that Bitcoin will “continue to become more and more important” and he expects Bitcoin to “get stronger.” Digital currency is built through a decentralized structure, which means governmental decision making doesn’t affect the value of money, which is very appealing to some.

One of the big challenges cryptocurrencies face is changing the public's perception of digital currency and proving that there is intrinsic value to its assets. The basic principles regarding the value of Bitcoin as a commodity, rely on the amount of individuals engaging with the system. The more people that begin to invest in Bitcoin as a payment method, the more value it brings to the currency.

The Coronavirus pandemic has revealed some obvious benefits to using digital currency over other traditional systems in operation today. While it won’t change a lot during the currency economic and financial situation, It’s another step in the right direction for cryptocurrencies.