Cryptocurrency is a thriving space, steadily encroaching on the territory of conventional finance. Over just the last five years, its users and transactions have reached an average annual growth rate of nearly 60%. Meanwhile, both private and public investors have strengthened their commitment to cryptocurrencies.
Since it hit the mainstream in 2017, crypto has been generally considered a much-needed champion of change in the financial sector. In an industry governed mainly by giant companies, cryptocurrencies present an opportunity to make secure, independent peer-to-peer transactions the norm. A digital asset platform is available to make your transactions securely and keep your crypto all in one place.
That said, 2020 has been the unwelcome year of disruption. The COVID-19 pandemic has shaken up virtually every facet of modern-day life, and unsurprisingly, crypto has not been excluded. In fact, it is currently facing its biggest test yet.
As a consequence of the raging Coronavirus, investment values across bonds, equity, and commodities have been plummeting drastically. As a result, the need to consult a cryptocurrency accountant has never been more crucial. The assets on demand are, therefore, those that seem to withstand the current slowdown.
While some investors are opting for the tested-and-proven strategy of buying gold, others have found crypto attractive for hedging risks, diversifying their portfolio, and even making a profit. It is now up to cryptocurrency to prove that it can indeed remain untouched by economic, geopolitical, and pandemic-like turbulence. With the world gearing up to rebuild after the COVID-19 crisis, it is possible that crypto will emerge in a more favorable position to take over the financial sector.
In this article, we discuss the young and promising space of crypto. We look into its humble beginnings, its 2017 jump into mainstream focus, the COVID-19 effect, and its presumed future beyond the pandemic.
The Evolution of Cryptocurrency
Cryptocurrency is currently a $200 billion industry that is sparking waves of global disruption. At its heart is a rich history of innovation, beginning with the cryptography advancements of the 1980s, and eventually leading up to the encryption techniques that protect today’s decentralized crypto networks.
It all began with the invention of Bitcoin in 2009. At the time, digital currency was something new and unknown to most. Initially created by a software developer going by the pseudonym Satoshi Nakamoto, Bitcoin gradually gained recognition as a groundbreaking currency independent of central authority and can be transferred almost instantaneously with meager fees.
Bitcoin’s initial idea was to create a secure, anonymous, and peer-to-peer mode of value transfer. It ran on the Blockchain, a decentralized ledger that maintained end-to-end transaction records immutably. Because the ledger could not be altered, blockchain technology guaranteed security without a third-party body, such as a bank.
With Bitcoin steadily gaining momentum, new cryptos entered the scene. In addition to being cheaper alternatives, they uncovered new opportunities and solved some limitations of the pioneering Bitcoin. Ethereum, for instance, introduced smart contracts into the crypto space, which dramatically expanded the scope of digital coins and blockchain technology as a whole.
2017: A defining year for crypto
In the world of cryptocurrency, 2017 is in the history books as the year digital coins gained mainstream attention. The combined market capitalization rocketed from $15 billion to over $600 billion in 12 months. In achieving this tremendous feat, cryptos crossed the threshold, transforming from an easily dismissable idea to something hard to ignore.
The exponential appreciation in crypto prices was accompanied by an overwhelming increase in trade volumes, which ranged well over $1 billion month-on-month since the beginning of the second quarter. Despite its high volatility, crypto compared favorably to other assets, bringing in a wave of new market participants.
Unsurprisingly, the spectrum of new investors varied widely, from tech-savvy teenagers to busy mothers wondering where to invest their savings. Individuals that were disenchanted by traditional financial institutions also sought solace in crypto.
High-net worth professionals, nimble family offices, and even sophisticated hedge funds wanted a piece of the cake. Moreover, 2017 was the year that saw an influx of businesses and institutions accepting crypto as modes of payment.
The shakeups experienced in the crypto space in 2017 have remained virtually unrivaled. That is, of course, until 2020: the year of the pandemic.
Crypto in 2020: The Coronavirus Disruption
The utopia that technological progress has always promised has been getting closer with every passing year. With the COVID-19 outbreak, however, unseen challenges have surfaced. The pandemic has plundered and destabilized the world in tremendous lengths, all within a few short months. It has endangered not only lives but also well established global businesses and economic boundaries.
COVID-19 has been overwhelmingly destructive. However, like the crises that came before, it has exposed some critical weaknesses in existing systems. Many investors are turning to crypto to combat the inflation that is currently gripping global economies.
Certainly, there is good reason to be bullish on crypto if you see it as a hedge against inflation. In response to COVID-19, the European Central Bank has pledged €750 billion worth of bond-buying, and this figure will increase if required. Moreover, both the Bank of England and the U.S. Federal Reserve have expressed intent to buy a large amount of debt to finance COVID-19-related government interventions.
The inflationary threat that these moves pose is increasingly becoming a concern to customers, with investments and savings likely devalued.
Skyrocketing demand for crypto
Cryptocurrencies have had a wild year. Bitcoin went from $10,500 to $3,860 and then it flew past $11,000, all in four months. Given the mainstream U.S. market environment and the price trend in the crypto space, some traders even began predicting all-time-high ranges for 2021.
Meanwhile, as stocks around the world crashed, cryptocurrency trading volumes reportedly surged, and global crypto exchanges cashed in on the ravaging market rout. According to CoinDesk, US-based Coinbase enjoyed record trading activity in the middle of March, the darkest time for the stock market. The Coindesk website reported that traffic on Coinbase had beaten the previous record by more than 50 percent.
Cointelegraph echoed CoinDesk’s report, stating that crypto exchanges had experienced their largest inflows of bitcoin ever. Trading volumes also increased dramatically for ether and other altcoins, including Tezos, Chainlink, XRP, Litecoin, and bitcoin cash.
No safe haven?
Bitcoin and its band of cryptocurrencies may be getting the most attention from investors since 2017, but the deal they offer is not exactly open and shut. Despite the recent price appreciation, crypto experienced its first global financial downturn this year, having launched several weeks after the 2008 collapse of Lehman Brothers.
Often viewed as a safe-haven asset that is immune to global shakeups, crypto was presumed to be among the few beneficiaries of a widespread slump in financial markets. Reasonably, investors were expected to seek refuge in a solution decentralized from the volatility in the general economy.
Recently, however, the COVID-19 pandemic has put this notion to the test. The fluctuation of crypto prices seems eerily similar to that seen in traditional stock markets, although in varying proportions.
In March, the stock markets took a tumble as investors first panicked about Coronavirus. The same dip was seen in the crypto markets as well. Later, after the U.S. released a $2 trillion fiscal stimulus package to rejuvenate the economy, the stock markets picked up, and so did crypto.
This pattern has cast doubt that crypto-assets can act as a “safer option” during a crisis by trending in the opposite direction to the conventional stock market. For many crypto investors, this notion was one of the key attractions to buying these digital coins.
Crypto after COVID-19
The recent attention towards cryptocurrencies, whether it is in the drama of skyrocketing prices or the doubt that it can hold its own during uncertainty, is doing a lot of good for the sector. Crypto is arguably as close to becoming an established and mainstream asset class as it has ever been.
Amid all the excitement, however, two questions recur:
- Will cryptocurrencies ever evolve to be used as an everyday alternative to fiat currencies?
- Will the crypto ecosystem ever become an alternative to traditional, more stable asset classes?
Although the world came close to getting definitive answers in 2017, 2020 might finally be the year we get a clear picture of the future of cryptocurrency.
Crypto as a worthy fiat alternative
Arguably, the most significant deterrent of crypto achieving mainstream adoption has been its volatility. The likelihood that people, especially non-experts, will feel comfortable using a medium of exchange whose value can rise and drop by as much as 10 percent in one day is tenuous at best.
The improvements around cryptocurrencies and more recent applications have made it simpler and cheaper to exchange digital coins. Nonetheless, the appeal of incumbent financial solutions is difficult to ignore. Why would you make or accept payment via a volatile medium, when you can transfer dollars with your smartphone in real-time and with the banking system
‘s backing? After all, traditional players have introduced peer-to-peer applications that allow you to transfer funds almost instantaneously with your smartphone.
A key proponent of volatility in the crypto space is the ever-present focus on prices, which almost always undermines original use cases. An influx of non-expert investors and traders comes every time price speculations fly around the internet. By putting too much focus on price, crypto champions may be inadvertently undermining the solution’s position as an everyday alternative to fiat currencies.
Nevertheless, the COVID-19 period presents some unprecedented hope for expert crypto holders. The dramatic increase in crypto prices in 2017 led to a long period of slower and costlier transaction processing. Similarly, this pandemic will likely contribute to such crypto forks, which may complicate the use case for non-experts and opportunists.
Forks are currently a part of the general crypto conversation, but they remain a potentially confusing aspect for non-expert users. Without these sporadic users, crypto can enjoy reduced volatility, at least in the short term.
Crypto as an asset class
Crypto assets might not have caught on as rapidly as their original inventors had hoped. But as recent trends portray, COVID-19 is paving the way for broader acceptance. With an increasing number of investors and capital pools allocating funds to cryptocurrencies, these assets are gradually becoming embedded in the mainstream financial system.
As an alternative asset, crypto plays an essential role for investors as a hedge, inflation protection tool, and investment. Macro investor Paul Tudor Jones reignited the conversation around cryptocurrency as an investment class when he recently announced he would be investing in Bitcoin. Crypto traders welcomed this surprise move as a shift of the tide in the traditional financial sector. Like many other investors, PTJ recognized the enormous addressable market for alternative assets.
As many have recently come to learn, Bitcoin is the tip of the iceberg regarding blockchain and crypto awareness. As the market becomes increasingly populated by new solutions, reporting and disclosure standards are bound to improve, which will reduce volatility and increase adoption.
What about stable coins?
Nowadays, you cannot mention volatility around crypto without touching on the so-called “stablecoins.” These alternative digital currencies have grown in popularity as a means of backing crypto with real-world assets.
Stablecoins inherently take crypto innovation to the next level. They leverage the Blockchain’s immense power to connect to any tradable assets, tying their values to them. So, while the value of crypto can vary dramatically in a short period, linking it to a relatively stable asset like gold, oil, or paper can bring its volatility down to acceptable levels.
The Winklevoss twins believe that stablecoins represent the future of crypto because they make it more comfortable to accept crypto payments. Moreover, investors do not need to place their full trust in liberated, unregulated currencies like bitcoin.
Governments may invest more interest in stablecoins than with other crypto assets. A future where stablecoins replace traditional fiat currency might be a long way off, but it is entirely plausible.
Is it the right time to invest in crypto?
The COVID-19 pandemic has sparked renewed interest in alternative money-making ventures. Although predicting what will happen to crypto is difficult, investors still want to know whether recent events make it the ideal time to dip their fingers into the pot.
Currently, opinions vary from one expert website to the next. Bitcoin lost and later gained back a lot of its value this year. While this trend might seem reassuring for both existing and new investors, it still points to the volatility of crypto.
Regardless, the ongoing pandemic is shaking up traditional economic structures. Crypto may not be entirely recession-proof, but it is proving to be more resilient than conventional asset classes.
Moreover, various countries have started recognizing cryptocurrencies in their financial laws. Their motivation seems to be new global standards for fraud and money-laundering prevention set by the Financial Actions Task Force. The rules give countries a useful framework for dealing with crypto-based criminal activity.
Financial regulators across the world are gradually aligning their virtual asset legislations with the FATF standards. In South Korea, exchanges now need to open a real-name account with a Korean bank, which is good news for risk-averse investors.
In February, a French court ruled that a Bitcoin loan can be considered a consumer loan. This move placed Bitcoin in the same financial bracket as money and other traditional assets in France for the first time. It reassures crypto users that they can expect protection under the law.
Despite the uncertainty around the future value of cryptocurrencies, these moves highlight that they have an increasingly guaranteed place within mainstream finance. It is, therefore, almost certain that crypto will continue well beyond the COVID-19 crisis. In fact, it looks pivotally positioned to replace a good number of traditional financial services in the coming years.
Whether or not now is the best time to get into crypto is not a black or white question. Nonetheless, the crypto space is in a rare and intriguing time. It is apparently more appealing than assets that were deemed safer because they were less volatile and more predictable.
As the global economy gradually gets back on its feet, a bull market in cryptocurrency may be on the rise: something that the world has not seen since 2017.
The Coins to Watch in 2021 and Beyond
Bitcoin has been the king of crypto since its inception. In many cases, it is accepted as a synonym for cryptocurrencies. So, while other crypto coins may eventually fade and die, it is safe to say that BTC is here to stay.
However, the crypto space is rife with speculations about the best coins for the future. Bitcoin’s value is undoubtedly appealing, but emerging digital currencies bring new and intriguing opportunities to the table.
According to Yahoo, Etherium, NEO, EOS, Ripple, and the proverbial Bitcoin are the five most promising cryptocurrencies to invest. So, if you are up to the challenge, dig deep in your wallet and perhaps even buy all five of them. Put $500 into each.
Losing $2,500 may hurt, but it will not kill you. On the other hand, you might convert it into a significant fortune.