The investment world truly never sleeps. The global financial industry can be affected by the smallest changes in several factors, and while numbers were encouraging going into the year, several new occurrences have forced analysts to take a bleak outlook.
Not least of those is the COVID-19 pandemic that is currently ravaging across the world. The virus has been upgraded by the World Health Organization (WHO) to a global pandemic, and financial markets across the world have been affected significantly. China, the epicenter of the virus, is the second-largest economy in the world. Thanks to the proliferation of the virus, however, business and economic activities around the country have ground to a standstill.
Economic Windfalls Across Several Industries
Thanks to the fact that China is so interconnected, however, global economic activity has been affected too. Markets are in a freefall, and at this point, investors are looking for alternative asset classes to hedge against this economic problem and preserve the worth of their wealth.
The effects of the virus have been extensive to say the least. Several of the top stocks in the United States have been severely hit, with investors running for shelter and a means to preserve their wealth. Earlier this month, the Dow Jones industrial Average dropped over 3,000 points, marking its worst trading decline in over 30 years.
Every major stock has taken a beating this past month. Big tech, oil, gold, banks, and even bonds have all posted losses, and as the virus rages on, there’s no telling where the bottom is.
At this point, all bets are off, and people need some measure of protection or the other. So, why not bet on crypto?
Crypto is Ripe for Investment
Cryptocurrencies have been in the news for the past few years, and while Bitcoin and other altcoins first gained notoriety as media of exchange and methods of making payment, they’ve grown to become much more. Today, Bitcoin has become a significant investment asset, with billions of Dollars’ worth of the asset being transacted daily.
Changpeng Zhao, the CEO and founder of crypto exchange Binance, once said:
“For any internet (non-physical) based business, I don’t understand why anyone would not accept crypto for payments. It is easier, faster and cheaper to integration than traditional payment gateways. Less paperwork. And reaches more diverse demographic and geography,”
The prominence of Bitcoin, however, could be the saving grace of a lot of investors looking to hedge against this economic downturn. Bitcoin was the top-performing investment asset of the 2010, providing up to a 90,000% increase in returns over the past 10 years, according to a ranking by CNN. The asset has also started 2020 on a strong note, and while it has taken a slight hit due to the effects of the COVID-19 virus, its value still holds favorable to that of other investment assets – including Treasury bills, stocks, and even the powerful oil.
With investors looking to capitalize on alternative assets, crypto is the best possible hope. Even better is the fact that Bitcoin has already proven to be able to help several countries and lift them out of economic despair.
A Proven Track Record
Last year, the government of Argentina imposed restrictions on the amount of U.S. Dollars that could be saved by the company’s locals after they chose to hold their savings in the currency – as opposed to the Peso, which has taken hit after hit over the past few years. Overnight, Dollars became inaccessible, and Argentinians found themselves stranded. However, many of them were able to turn to Bitcoin and successfully saved their wealth.
Peer-to-peer lending platforms reported at the time that Bitcoin trading in Argentina spiked significantly within the second and third weeks of December 2019, and while the asset’s price at the time was about $6,500, Bitcoin was able to rise up to $10230 this year already.
That’s almost a 100% increase – more than they could have gotten even if they chose to save with Dollars.
CEO of Aximetria Alex Axelrod said, “The coronavirus pandemic has once again shown us how fragile the global economy is. Stock exchanges, currency rates, and even cryptocurrencies sank record-high. In such a situation, can we possibly claim that cryptocurrency can help the global economy? Absolutely. Although the Bitcoin exchange rate has almost returned to its 2019 indicators, this figure cannot be compared with the losses that residents of countries with unstable economies have been suffering for years. It is enough to recall that the Argentinian peso collapsed by 19% in just one day on August 12th, 2019, and in a couple of weeks the government has drastically limited foreign exchange operations. When viewed globally, cryptocurrencies keep the global economy from even greater losses.”
In an interview with Bloomberg News, Bill Gates, the co-founder of Microsoft (NASDAQ:MSFT), said:
“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.”
A similar tale has been recorded in Lebanon. Late last month, the country plunged into a deep economic meltdown, with the government imposing capital controls on customers to force them to withdraw their savings in Lebanese pounds at the official exchange rate.
The measures caused the savings of Lebanese people to cut by about 40 percent, and as news reports confirmed, citizens were able to preserve their wealth using Bitcoin.
Privacy Concerns and the Progress Being Made
It’s understandable that a lot of investors might feel uneasy about investing in crypto. Stories of hacks and security breaches have been extensive, and there have also been links between digital assets and fraudulent activity. However, it’s worth noting that some new developments have started to take shape.
On the privacy front, there are two significant improvements that have been put forth; the Fifth Anti-Money Laundering Directive (AMLD5) of the European Union, and the travel rule put forth by the Financial Action Task Force (FATF). Both regulations provide standards for digital asset custodians and companies operating in the crypto industry to follow as regards privacy and information collection.
The AMLD5 came into effect in January, and several crypto firms across the EU have already pledged to abide by its precepts. The same can be said about the FATF travel rule, which requires that virtual asset service providers collect information about transfers being made to ensure that cryptocurrencies are no longer used in money laundering and terrorist activity.
Thanks to these, investor trust in cryptocurrencies should rise significantly.