Every crisis brings with itself an opportunity. From one such in the past was born cryptocurrency. But how will the ongoing pandemic affect policy, adoption and investment trends in cryptocurrency?
Apart from the staggering human cost of the pandemic, what weighs heavily on the world in the second half of 2020 is an economic recession. Traditional investment values have nosedived across the board in terms of commodities, bonds and equities and the IMF has dubbed this ‘the worst recession since the great depression’.
In the past, the birth of cryptocurrency on a decentralised, peer-to-peer network was precipitated by another financial crisis- that of 2008. It was shortly after the event that the pseudonymous Satoshi Nakamoto authored the bitcoin white paper and devised the first blockchain database. Since then, over 3000 cryptocurrencies have been introduced. It is no surprise then, that the present day crisis has had investors look to Bitcoin yet again as a means to hedge the risks and make profits.
Cryptocurrency and blockchain have not been affected by the fluctuations of the COVID-era markets; they have in fact seen a surge in the number of their users. “Daily crypto trading volume in India may be $10-$30 million,” noted Ajeet Khurana, former head of the Blockchain and Cryptocurrency Committee of the IAMAI (Internet And Mobile Association of India). Trading volumes have reportedly increased by 400% on certain platforms in the last few months.
One of the reasons is that the pandemic has forced us to stay indoors, pushing us towards an increasingly digital lifestyle and accelerating major technological advances. Loss of income and pay cuts have also meant that people are now more open to new investment alternatives. More digital time at home has given us an opportunity to upskill and educate ourselves on the latest technologies. Moreover, crypto offers the possibility of reducing the cost of doing business substantially, owing to its relatively low fees.
On observing the recent market crisis brought upon by the pandemic, it is seen that cryptocurrencies and the stock market were correlated only for a short window of time. This had less to do with the market itself, but was primarily due to a liquidity issue and compounded by the halving of Bitcoin every four years, which took place on the 11th of May 2020. This year has also seen some relief at the policy level- in March 2020, the Supreme Court overturned the RBI’s total ban on cryptocurrency transactions in India.
This is not to say that investing in cryptocurrency is risk free- it has seen its fair share of volatility, something which will most likely be overcome with mass adoption. Paraphrasing Bloomberg: “Maturation, greater depth and plenty more exposure via futures should continue to suppress the first-born crypto’s volatility, clearly keeping it tilted toward price appreciation.”
Any investor worth his salt will tell you that in troubled times, diversifying your investment portfolio is a wise step. And for the reasons mentioned above, cryptocurrency is starting to look like an increasingly attractive way to put your eggs in different baskets. Join the Unocoin community today and let us help you enjoy the benefits of using cryptocurrency.