What the Pandemic Has Done to the Cryptocurrency Markets: The Lesson of Digital Assets

Cryptocurrency has always had a somewhat ambivalent reception across the globe, but no one can deny that it’s had staying power. Even as it rises and falls, it never goes away. In fact, if you’ve followed it at all, you’ll see that the interest is actually growing and not just in the US. Part of the reason for crypto’s popularity is because of its proposed utility. While wide-scale adoption has by no means been reached, the promises of it are undeniable.

So what does that mean now that we’re all living through the coronavirus? As businesses shut down and financial institutions consider their next moves, are investors more or less likely to look toward digital solutions as an answer. We’ll look at how the pandemic is affecting the markets and what it could mean for the future of the unseeable money.

The Long and Short

If you remember nothing else about digital assets, you should know that its potential has only grown because of the pandemic. You’re likely to see a plunge in the markets if (and when) the second wave of the virus strikes, but it’s also likely to rebound just as fast. When so few people can work without being online, people have a tendency to put more power into what they can find there.

The Power of the Blockchain

There’s been a good deal of controversy over cryptocurrency and what it can do. Some people fear the anonymized nature of it (despite the fact that cash is even more anonymous) and its association with the criminal element.

Despite all the bad things that have been said about cryptocurrency, you’ll find very few complaints about the blockchain. Otherwise known as the underlying technology that makes cryptocurrency possible, this unchangeable ledger has been hailed as a miracle by nearly everyone who’s seen it in action.

It can be used to control supply chains, reduce fraud, and provide a type of security the likes of which we’ve never known.

Some financial mainstays have already put their money where their mouth is and actually implemented the blockchain to both keep track of their financial transactions and reduce transfer times. There’s a reason why many of the major banks have invested in this technology, and it’s definitely not because leaders are hoping Bitcoin will replace fiat.

As COVID-19 continues to disrupt economies all over the world, it should be easier to see why people are turning to the blockchain space even more now than they were 9 months ago. Other companies are facing layoffs and declining sales, but those in this industry are mainly experiencing the exact opposite.

Instead of firing, they’re hiring. Instead of relinquishing their space, most are expanding their services. They’re also applying for new licenses to ensure everything is done on the up and up.

Weeding Out the Weak

This is not to say that every company in the industry is thriving, only that the bones of crypto are showing their strength right now. Those building blocks offer something different than the traditional markets that we’ve been so used to relying on.

If our stocks are seen as so tenuous and the blockchain is seen as indestructible, there’s more likely to be a fundamental shift in how things are done. Of course, it doesn’t mean that traditional markets are being abandoned, it only means that investors are more open to considering an asset that’s based in a virtual rather than physical world.

What this global crisis will likely do is reorder the industry. Any companies that don’t have the resources needed to survive will likely fold by the next wave of the virus. This is being viewed as something of a sink-or-swim test for everyone who’s watching. If only the strong survive, the industry will inevitably become stronger too. That kind of stability will mean a lot to new market participants, something we’ve already started to see play out.

The Crux of the Problem

What do consumers want? This pivotal question means everything today. As the pandemic sweeps us all up in its unpredictable nature, professionals everywhere need to know who they’re serving and why they’re serving them.

An investor needs to know who’s using crypto and why. Storage platforms need to know what’s standing in the way of traditional firms getting in on the crypto action. And blockchain companies need to know how to attract new clients from different industries — whether they use cryptocurrency or not. If you look at the markets right now, you’ll find that derivative and margin products are grabbing the attention.

We can also derive plenty of meaning from the inherent value of the coins. We may not be able to attach motivation, but the historical prices can tell us a lot. Anyone who’s familiar with cryptocurrency won’t be surprised that March saw Bitcoin prices fall to $3,000 only to see it hit five figures not much later. The pandemic might have affected the value, but those effects were short-lived.

This is the kind of rebound that we see over and over again with the King of Crypto. Other players, like Ethereum and Dash, have also seen some of that same roller coaster, but have never reached the highs of Bitcoin. Incidentally, in the wake of COVID-19, the chatter about different kinds of coins has started to fall off. It’s not that these coins don’t carry tremendous potential, it’s just that Bitcoin has really grabbed onto the spotlight right now and held it.

The second wave of the pandemic is feared to once again tank the traditional markets. When you compare those markets to crypto’s markets though, the recovery of crypto has been faster than many other investments. We’re likely to see the same event occur again as the second wave hits.

What’s Behind It All?

Cryptocurrency may not always follow the same trajectory of traditional markets, but it’s still traded by real people with similar motivations. Some people are simply investors. They see cryptocurrency as an interesting way to make money, not a global solution to a global problem. Other people are just curious about how it works. They might buy it as a novelty and follow the market casually.

And some truly believe in the promise of cryptocurrency to bring stability to our wider markets. By stamping out fraud and creating a recognizable and universal currency, the process of buying and paying for goods and services can be streamlined in ways that we never could have imagined before.

The initial plunge wasn’t necessarily unexpected. When investors see chaos, the markets respond in chaos. Prices jump and fall in extreme measures before working themselves out. Companies surge and plummet based on demand and anticipation. This explains why the pandemic has had a strong effect on this emerging space.

The Lure of Crypto Assets

There have been so many changes to the financial industry in just the past two decades. It doesn’t take long to realize why assets aren’t being traded on the floor anymore. Even before the pandemic, investors were increasingly more likely to do business on their phones than on Wall Street.

Crypto offers the ability to complete countless transactions on a wide variety of mobile applications. When values can change so quickly, flexibility and speed are absolutely crucial to its ongoing success. We can especially see the benefits when we take the time to compare and contrast.

Gold, cash, real estate: there are just some of the things that we take for granted in terms of assigned value. But just because your $10 can buy you something today, doesn’t mean it will be able to buy you something tomorrow. Inflation can turn that bill into paper faster than we’d all like to admit.

Property only holds its value if the land is useful. If it’s wiped out because of a hurricane, it can wipe out the investor. (It may be why the precious metals market is expected to rise in the next few months — worth of these objects has been firmly established and fairly unchanged by history.)

Because there’s another thing that we’ve witnessed over the years that has held incredible worth to people, and it’s called technology. Despite that blockchain has been around for less than a split second compared to gold or silver, it has the potential to change the way we do things. Much like the internet itself, cryptocurrency has introduced a new mindset to millions of people. And it’s only expected to proliferate even further.

As devices become cheaper and cheaper and we can accomplish more and more straight from our phones, the trend is to move everything over to digital services. This is why people are becoming more attracted to these assets. It’s clear that we find them to be worthwhile.

We’re expected to see real growth in crypto assets, beyond what we’ve seen in the past. And this is true even if we see an economic recession that results from COVID-19. As people shift away from the physical realm, they’re giving that much more power to the digital one.

It’s this mindset that is expected to fuel the expansion of crypto. As markets move up and down, the overall momentum of crypto will attract even more buyers, further giving credibility to it. The more people buy crypto, the more merchants will be inspired to take it. The more merchants take it, the more legislators will be forced to acknowledge its legitimacy.

A New Marketplace

in terms of behavior, experts are seeing more aggression when it comes to how investors are reacting to global headlines in relation to crypto. Family offices and asset management companies are especially likely to at least diversify their holdings through digital assets. Some private equity firms have already started partnering with storage platforms to increase their capabilities in case they want to scale their holdings even more.

We’re expected to see the markets develop in a variety of ways, which means we may start seeing bigger initial exchange offerings and more incubators for blockchain products. The nature of these projects will tell us more about what the everyday consumer wants out of their cryptocurrency and blockchain functionality, further driving the direction of the industry.

In addition, we’re seeing more companies and banks set aside money for these still somewhat untested markets. In a recent survey, 4 out of 5 institutional investors viewed digital assets as an appealing option and 3 out of 5 have been actively seeking out Bitcoin as part of their portfolio.

The number of institutional investors who saw crypto as appealing was about the same. In the US, it was 3 out of 4 investors, and in Europe, it was more than 4 out of 5. When asked why this was attractive to them, there was a fairly even split: about a third felt it was because the money wasn’t correlated to other types of assets, a third felt that it was due to the disruptive nature of the technology, and a third appreciated the high likelihood of profits.

Being at Home

There’s no denying that the pandemic has caused a major shift in how we all do business. Those without high-speed internet increasingly find themselves at a major disadvantage. While our bandwidth and our Bitcoin holdings might not seem to have very much in common though, the fact is that the two might be more correlated than we think.

As we spend even more time online, the ‘new normal’ is for more to happen online. Why should a consumer grab a credit card and input the numbers when they can just pay from a crypto account that’s already set up on their phone? Not only is it more convenient, but it’s also more secure.

And with new blockchain applications debuting by the minute, it can actually be faster and cheaper. Lower processing fees mean that merchants don’t have to raise their prices. Experts in the financial space are unsurprised about digital assets being categorized as a new investable class. The technology promises to open up new discussions amongst billionaires and novices alike. Not everyone may believe in the underlying principles of this unconventional payment, but that doesn’t mean they can afford to ignore it either.

How the Blockchain Can Be Applied to Industries

The sheer versatility of the blockchain is such that it’s managed to stretch to nearly every industry. Supply chains can keep track of their goods, medical systems can be updated quickly and easily, and charity and non-governmental organizations can introduce more accountability into their systems. It keeps track of everything — including how the middlemen take their cut.

Blockchain also has major implications for the Internet of Things (IoT). As of now, IoT is mainly sought by leaders of major operations, such as schools or warehouses. They look to the IoT to control everything from the electrical grid to the plumbing.

By connecting everything together, the savings and efficiency implications are impressive and promise to cut costs across the board. As the IoT catches on, we might see it start to catch fire among smaller companies and even everyday consumers. If the blockchain is applied to even half of these applications, the effects would be significant.

Big Opportunities

Right now, the majority of investors see digital assets as a way to hedge their bets. Instead of focusing solely on traditional assets, they’re trying to think outside the box. This means the market has a huge chance to capitalize on the extra attention. As asset management companies and banks are brought to the table — regardless of the reason — it only serves to get more mainstream investors onboard.

Understanding Regulations

Here’s where we look at the other side of crypto. Part of the biggest reason why people have been so turned off to cryptocurrency is for its lack of regulations. How can the money be worth anything if it’s a Wild West of trading? Surely, the governments will have to put an end to it.

This reasoning is sound in many respects, but it hasn’t been what we’ve witnessed. For one, the whole point of cryptocurrency is to decentralize our funds, essentially creating a system that doesn’t rely on the governments. This way, if a country is in strife and on the brink of collapse, no one has to worry about whether their money will have lost all of its buying power in the blink of an eye.

The creation and valuation of crypto at the beginning might have looked like an untamed marketplace without any rules, but that’s often what any new asset looks like at first. Everyone’s trying to catch up, but with the ever-changing speed of technology, staying up-to-date with the latest news is a pretty tall order.

Traditional finance players entering the space creates a double-edged sword. On the one hand, people might bemoan the creation of rules and standards. If the whole point of crypto is to subvert the rules, then isn’t the purpose defeated by introducing the same people who dominated the space before crypto came along?

But there’s another side to these professionals entering the market. The more they come together to set boundaries, the more consumers know what to expect. If Bitcoin and other kinds of cryptocurrency are seen as reliable to the average person, then they’re more likely to be adopted en masse. You’ll see new platforms springing up all over the world to serve as a bridge from a known asset class to the unknown asset class.

Now traditional firms can get in touch with consultants to understand more about where everything stands. Investors have the chance to get in on the ground floor, and maybe even to create the standards that will eventually be used for years to come.

Tiny Transactions, Big Impact

We’ve already touched on a lot of what crypto can do: help people retain the value of their money, take away the need for a centralized bank in a country, and improve transaction security. If you’ve ever received a new credit or debit card because yours had been compromised, you’ll see immediately why people can at least relate to the idea of cryptocurrency. Even with microchip readers, the chances of a hack are too high for most people.

But there’s another major function of cryptocurrency: microtransactions. If you use a credit card nearly anywhere, you need to make the transaction high enough to warrant the transaction fees. In other words, you can’t buy gum for $.50 because the merchant might spend $.40 in credit card transaction fees. Bitcoin promises to help people send money all over the globe, regardless of the price or who they choose to give it to.

The Uncertainty Ahead

It’s rare that the worst of the worst projections ever really occur. While the headlines spell doom (sometimes for the whole world), we have every ability to smooth the fallout. But no matter which way the chips fall in the future, there’s still a lot of fear out there to contend with. People worry about the state of their nation, and how well it will hold up if the economy can never get back to what it used to be.

It’s not entirely impossible that we’ll find a solution in the crypto markets. The most recent pandemic of 1918 killed millions, but it also resulted in a complete overhaul to our healthcare system. We might be looking at a similar overhaul to our financial systems. If we’re looking to spend that much more time online, it’s easy to see why this might happen.

Whether you start using crypto on an everyday basis or not, we’re going continue to move into the digital world — that much is clear. This certainty means that the pandemic will likely continue to drive the prices of crypto up.