Time for cryptocurrencies to take over the stock market?

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While the events of the past few months have shaken up pretty much every aspect of our lives, the truth is that even before the pandemic was in sight, the financial market had been struggling. Talks about another crisis had been brewing for some time.

The arrival of Covid-19 was indeed the last straw in revealing widespread discontentment with a system that is increasingly considered unfit for purpose. Amid a near total shutdown of the air travel industry, the price of oil — which had already been heading down — reached negative figures, worsening the turmoil in the financial market.

Beyond the wreckage in the stock market, the impacts can also be seen in the global economy, which will experience negative growth this year. In the US alone, 30 million people have filed initial unemployment claims since mid-March. As a way to recover the economy, the US FEd and the European Central Bank are resorting to quantitative easing, a method criticised by many as potentially causing inflation and returning very low interest rates on investments.

The virus has shown itself not only to be a threat to people’s lives and healthcare systems; it has also highlighted how our economic and political structures are ill-prepared to protect people’s assets and jobs, calling into question how much governments and authorities can be trusted to provide sound and effective solutions at a time like this.

In a research report published on April 30th, Phil Bonello from Grayscale Investments noted: “Today’s macroeconomic environment continues to reinforce that a scarce, digital, non-sovereign form of money may be an attractive place to store value and may serve as a hedge against unrestrained money printing.”

Cryptocurrency to the rescue?

Talk of alternative finance has always been brewing within the crypto community, which has long advocated for a shift to a new financial and economic system, one that is less centralised and more user-centric.

Cryptocurrencies leverage on the features of blockchain technology, allowing money to be transferred in a safe and quick manner. Praise for blockchain and cryptocurrencies had been growing over the last few years as the ‘crypto revolution’ was fuelled by frustration with the old highly centralised system which operates slowly and concentrates power into the hands of a few elite organisations.

Just as stock markets were struggling at the start of April, Revolut, one of the largest fintechs in Europe, announced its decision to make cryptocurrency trading available to all its seven million customers.

Revolut was no stranger to digital assets, having offered support for Bitcoin, Ether and Litecoin to its Premium users since 2017. The London-based fintech referred to crypto’s origins as an “alternative to real money during the times of quantitative easing and currency devaluation following the 2008 financial crisis,” which is “happening again right now” following the COVID-19 economic upset.

Investors have been seeking safer havens for their money, and cryptocurrencies — particularly Bitcoin — are regarded as one of these alternatives. “Aside from gold, the list of alternative assets to consider as a hedge against uncertainty in the global markets are few and far between,” said Fred Schebesta, co-founder of Finder, to the Economic Times. ”To me, Bitcoin remains one of the most attractive assets in helping diversify a portfolio looking to hedge against risk in the coming years.”

Crypto market heats up anticipating Bitcoin halving

This May, crypto enthusiasts are looking forward to the next Bitcoin halving, a rare event that will mark the fall in the number of bitcoins unlocked for mining one block, from the current 12.5 bitcoins to 6.25 bitcoins. This mechanism exists to ensure the limited supply of Bitcoins and to control the value of the cryptocurrency. It also works as a market regulator, indicating it could lead to a price increase. Crypto advocates see the halving mechanism as a way to control inflation.

CZ, CEO of leading crypto exchange Binance has shown his excitement on social media.

Clem Chambers — serial investor, CEO of global leading financial news platform ADVFN and CEO of blockchain application developer Online Blockchain — who predicted the market collapse in earlier in January 2020, warns investors to be very careful about equities as he looks favourably at crypto as a sound alternative investment for long- term rewards in these times of market volatility and anticipated recession: “If you think the future is hyperinflation, you need to buy Bitcoin.”

In anticipation of the halving, in the last week of April the entire market capitalisation or value of cryptocurrencies jumped $35.3 billion in 24 hours. Bitcoin reached $9,388.30, representing an 18.57% increase in one day.

In the last 24 hours, Bitcoin price went back above $9,000, just as as the U.S. government announced it plans to borrow further $3 trillion to revive the economy.

While Bitcoin can be considered as a form of ‘digital gold’, the true value of cryptocurrencies lies in the fact that they are designed as more than an alternative finance method. Digital assets have high use-case value because they provide a range of services and products that in the traditional system would require a middleman such as a bank, in addition to going through a lengthy, expensive and bureaucratic process.

Ethereum, the second-highest valued crypto in the market, for example, is a smart contract platform that enables developers to build decentralised applications (dapps). On the blockchain, smart contracts run without any possibility of downtime, censorship, fraud or third-party interference; facilitating the exchange of money, content, property, shares, or any valuable asset.