What we’re experiencing globally with Coronavirus and economic chaos has accentuated our need for better financial tools and payment solutions. The cryptocurrency industry, now over ten years strong, has been building an infrastructure that could alleviate economic disparities and dysfunction. If we take a close look at some of the ways virtual assets can solve these long standing economic problems, we can gain insight toward building steps to a brighter financial future.
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In this economic downturn, we’ve seen a major shift in financial products as safe haven assets have grown in prominence. But what people consider to be a safe haven asset is changing. In past recessions, USD, the Yen, bonds, and gold have given investors a potential safe haven when stock markets or local economies are crashing.
Today we’re seeing some of those assets as safe havens, though not all, as governments are becoming less and less trusted in many parts of the world. On the other hand, there are also alternative safe havens that are seeing growing adoption in the cryptocurrency markets. Stablecoins in particular have become popular in countries with out-of-control inflation. Instead of continuing to lose money through inflation, they have an alternative holding place for their savings, which would ordinarily get obliterated when inflation runs out of control. People just need a device and an Internet connection to buy into a safe haven stablecoin or cryptocurrency, such as with USDT, a stablecoin backed by USD.
Bitcoin is another example of where some investors are flighting to during this economic upheaval. It’s a borderless currency that can be accessed from anywhere. Since inception, bitcoin’s ROI is over 5000%. Even as some institutional investors back out of bitcoin to move to cash positions due to COVID-19 related shutdowns, retail investors are moving in.
In the last 30 days alone, during the peak of Coronavirus, prices for gold, BTC and BNB have all risen dramatically:
Gold (XAU): up 13%
Bitcoin (BTC) up 24%
Binance (BNC) up 37%
Flighting to non-correlated assets
Investors and generally most people in the world right now are liquidating because they need money to live and basic necessities. At the same time, cryptocurrencies like Binance’s BNB are rolling out their own portfolio optimization programs.
What this means is that investors no longer have to depend solely on traditional financial vehicles for all of their portfolio needs. Now there are choices within the crypto industry that help people hedge their holdings in the highly manipulated traditional markets with assets that are not as correlated to Wall Street.
Research out of Binance points to crypto assets like BNB and bitcoin becoming more important for portfolio diversification:
“Thanks to their low correlations with other financial assets, the inclusion of cryptoassets to traditionally diversified portfolios drastically improved the risk-return characteristics of these portfolios, as measured by their higher Sharpe ratios.”
Even institutional interest is growing. Andresseen Horowitz, for example, is preparing to increase crypto asset holdings by launching a new USD $450 million blockchain fund. They are looking to add more blockchain and cryptocurrency firms to their investment portfolio.
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Exposure of flaws in current financial systems
Another amazing thing that has been accomplished by the cryptocurrency industry is raising awareness about current economic policies. Bitcoin is a superlative example of sound money, with deflationary aspects hard coded in and an open and transparent system of economy available to everyone. People are learning more and more about how cryptocurrencies work and realizing that, in many ways, digital currencies are simply better.
Take for instance the US stimulus payments promised to each citizen. It’s been several weeks and most people have still not received their payment, most of whom have already gone without work for over a month. With a digital currency, you could have universal wallets and a cheaper, faster, and more transparent payment process to better handle an economic crisis. When people most needed widespread and immediate distribution of economic aid, the current system lagged, slowed down by an administrative labyrinth riddled with political input and red tape.
Volatility triggers growth in crypto trading platforms
No one wants to be insensitive to the plight of all those who are suffering from uncertainty and financial stress. But the fact of the matter is, when markets are volatile, traders have increased opportunities to make profitable trades. With crypto exchanges such as Gemini or Bitcoin.com Exchange being open 24-7 year round and available to all, the industry not only offers the trading platforms for virtual assets, but traders and investors everywhere are enabled to start earning money from home right away, without having a large holding.
Financial inclusion is one of the foundational aspects to cryptocurrencies and even in these troubled times, crypto markets include everyone, regardless of how much money they own or where they live. The global phenomenon reaches all corners of the earth offering wealth management tools never before available to the average Joe.
Every day we’re seeing new partnerships between cryptocurrency exchanges and supporting industries such as index providers, social trading apps, and crypto wallets. At our company, HedgeTrade, we’ve recently linked up with major crypto exchanges, including Bittrex and Bitcoin.com, some of the most prominent names in the industry. Things are moving forward for us, as well as most crypto platforms, at breakneck speed and it’s a very dynamic and exciting time to be involved; knowing that we’re creating solutions that help fix modern economic woes.
The cryptocurrency industry is full of people who are passionate about creating new ways of thinking about money. And these entrepreneurs have the creativity, adaptability and drive to bring these new financial tools to life. For us and everyone, it’s a hard time to be in the world. No one can deny that. But when you’re working on potential solutions, you can look at yourself every day and know that there’s something better and you’re a part of bringing it to life.
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