Is the Coming Economic Crisis Crypto’s Make or Break?
Can an idea born in the ashes of financial ruin survive through another?
Will a financial technology invented as an outright rebellion against an entrenched monetary system be able to prove itself in the shadow of the world’s worst economic recession in living memory? Or will it face even tougher obstacles in adoption and lose traction as spending power and investment capacities take a hit in the years to come?
Such are the burning questions that must be going through the minds of participants in the blockchain and crypto universe, be they miners pondering over the future viability of economic production, developers building better and more sophisticated infrastructure, or speculators and investors considering the future market valuations of digital assets.
The year 2020 will prove to be a momentous period for an entire generation of crypto investors. From the closing months of 2019, geopolitical tensions in the Middle East and East Asia had been threatening to enter an unprecedented era of reckoning with the traditional powers in Europe and North America. At the same time, financial and banking experts warned of a global economic shockwave coming, with Europe and China all but confirming GDP contractions after years of positive growth.
Then, unsettling news of a virulent strain of influenza-like disease emerged in the first quarter of 2020, rapidly progressing into a deadly pandemic that has claimed almost over 443,000 lives so far [WHO, 18 June 2020] and forced virtually every country worldwide to enter a state of lockdown, further crippling sensitive economies already braced for slowdown.
Even blockchain and crypto — with its promise of changing the way we use and interact with finance and money — has not been spared from this critical convergence of social, economic, and political upheaval.
Crypto experts spar over the future of the industry
Speaking during a Coin Journal panel discussion, crypto and fintech experts discussed the various possible outcomes for the industry. What was certain, despite differing opinions, was that the industry sentiment toward Bitcoin would change.
Despite pre-existing symptoms of an ailing global economy, Yoni Assia, the CEO of social investment platform eToro, puts the finger firmly on the COVID-19 pandemic as the point of no return. Fearing the aftermath of the traditional monetary system, investors are turning towards the most obvious alternative: Bitcoin. Assia believes the unprecedented announcement by the US central bank that it was ready to print unlimited dollars had caused many investors to place their bets on Bitcoin as a hedge against the US dollar.
“…worries over inflationary currencies like the USD dollar caused by unlimited quantitative easing measures have also provided impetus for using deflationary cryptocurrencies instead.”
eToro market analyst Simon Peters took it a step further, saying that this was a chance for Bitcoin to fulfill its oft-cited premise of digital gold, and that the data showed that popular opinion supported this theory. According to him, there was a 77% increase in new eToro users whose first action was to invest in Bitcoin.
“As the price of Bitcoin is traveling in the same direction as gold, you could argue investors view it as a safe haven asset,” said Peters.
For the eToro experts, Bitcoin was a natural digital mirror of gold: a commodity with a finite supply, decentralized in nature, and inflation-proof. But where gold is challenging to store securely and difficult to access, Bitcoin is perhaps the world’s most secure form of digital money, and is accessible to anyone with the internet.
Jerry Chan,TAAL CEO, in begging to defer, pointed at the evidence that had begun piling up since the “Black Thursday” event of March 14th 2020, when both traditional and alternative markets crashed spectacularly. In the fallout that followed, oil traded at negative prices, US stock markets experienced its worst dip since the 1970s, and Bitcoin shed some 80% of its value in 24 hours. Chan stated:
“While Bitcoin was expected to be a ‘flight to quality’ asset, much like gold, it declined in line with the stock markets, which has led to increased mistrust.”
Interlapse CEO Wayne Chen, however, disagreed with that conclusion, saying that any economic uncertainty prompts investors to divert to alternative assets. By that definition alone, and separate from black swan events, this means Bitcoin. Furthermore, continued interest in Bitcoin mining — this week saw a 2.5 year high of 14.95% in difficulty adjustment — proved that confidence in the digital asset had not eroded, especially once halving adjustments reminded the network of its scarcity factor. He said:
“Historically, Bitcoin prices always surge significantly following a halving event. The increase may not be immediate but will likely be guaranteed until the next halving.”
Huobi Group Head of Global Markets Ciara Sun provided an opinion on the long-term future of blockchain. She said that the interest in fresh solutions to old, persisting problems in finance, money, and even health and logistics, as a result of this year’s events, would renew considerations into emerging tech like blockchain.
Aside from the multi-organizational efforts that will surely seek efficient solutions, Sun believed that blockchain and crypto projects would demonstrate their worth as a critical part of the new cashless economy that had an opportunity to prove its usefulness in a lockdown world.
Though the industry itself would lose players to the economic crisis, successful blockchain projects would still emerge and they would likely be those with “the strongest community base, most robust blockchain infrastructure and scalable token economics”.
Cover Image: https://pixabay.com/illustrations/corona-cost-bitcoin-block-chain-5081315/
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