Is the Coronavirus a Prelude for a New Universal Currency?
Opinion analysis by Rhea Haddad, Staff Writer
May 3rd, 2020
As traditional markets struggle to find direction in these difficult times, the cryptocurrency market is experiencing unique trends. Conceived in response to the financial crisis of 2008, the bitcoin has been defined as being explicitly decorrelated from other financial assets, giving it a safe haven status.
As a virtual currency, Bitcoin was developed in 2009 by an anonymous individual whose pseudonym is known as Satoshi Nakamoto. Unlike conventional currencies, typically referred to as fiat currency, bitcoin is not issued nor administrated by a banking authority, but rather by the blockchain protocol. This technology enables information to be stored and transmitted transparently and securely and without a central control body. Similar to other cryptocurrencies, bitcoin is brought into circulation through mining.
Miners are individuals spread all over the globe that perform calculations using their computer hardware to validate transactions and increase transaction security. In exchange, they receive bitcoins, that can be converted to fiat currency or traded for other cryptocurrencies on exchange platforms.
Bitcoin’s value is simply determined by the law of supply and demand. The issuance of bitcoins is provided by the initial code and is limited to 21 million units.
After the irrational panic sale on March 12, the crypto market has not only stabilized but has since grown independently from the traditional market.
Although indeed, bitcoin use has not exploded so far since the stock market crash, we still foresee very promising signs for the future of this technology. In a post-coronavirus era where the global economy is anticipated to struggle to recover from excessive inflation caused by insane monetary impression and government bailout failure, cryptocurrencies could finally reach their full potential.
Crypto-skeptics instantaneously took advantage of the economic collapse caused by the COVID-19 crisis to condemn bitcoin’s position as a safe haven. Many in the crypto sphere hoped to see traders and investors transferring their money from the conventional collapsing stock market to the cryptocurrency market. However, what happened was not limited to a stock market crash, as gold and cryptocurrency markets ultimately dropped too.
But there is little to worry about. What we saw during the cryptocurrency crash was nothing more than a panic sell. After this sales spree, the situation has stabilized. Since the number of units of bitcoin is fixed - unlike fiat currencies – no one can “print” anymore and the demand is steadily increasing every year.
The latest stock market outburst was simply too large to induce economic contagion. Even gold, the most recognized safe haven, has not withstood the bullish flow. Thus, the use of bitcoin as a safe haven remains possible, at least in less apocalyptic market conjunctures. With fiat coins now being printed at breakneck rates, owning bitcoins can be a significant tool for financial survival.
To contextualize this; let us compare the differences between gold and bitcoins. Have you ever tried to pay for your daily groceries with gold? It is impossible; as it is also impossible to transport large quantities of gold. Sure, it is still complicated to do so with the bitcoins too, but things are developing every day. Additionally, cryptocurrencies can be sent anywhere in the world, at any time, in very large quantities, and with minimal transaction fees. As of March 2020, the average transaction fees for bitcoins are less than $1, regardless of its size. This suggests that it is quite possible to witness the emergence of a new era for cryptocurrency once the coronavirus crisis is over. Then, people with larger money reserves will quickly realize that it is time to invest again. However, the remaining key question is where are they going to place all their capital?
Currently, central banks are printing money at an alarming rate despite the ongoing downfall of the stock market, because government policies take effect in the long-run. Eventually, the aid they will provide will not benefit small businesses but rather large banks and financial institutions. This system has failed for a long time and there has been no solution to resolve it. The latest approach to overcome this dilemma is through the use of bitcoins.
With cryptocurrencies, governments will no longer be able to just print fresh money to bail out the big banks. There will be more possibilities to distribute wealth as multinationals’ CEOs will no longer be able to benefit alone from the billions of dollars that are paid after every economic downturn.
For all these reasons, bitcoin and other leading cryptos are an arguably perfect long-term investment. Soon, people will realize that the current system is not suitable for this kind of situation and that the solution for this corruption- public blockchains; cryptocurrencies is already here. The problem is no longer “whether” bitcoin use will increase in the post-coronavirus era, but rather “when”.