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Could Crypto help the Coronavirus crisis?

Can Crypto Help Us Through The Coronavirus Crisis?

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You would be forgiven for thinking cryptocurrencies would die a death during a global pandemic. Many see them as a nice-to-haves in a time of abundance – when citizens don’t need the state and are keen to capitalise on intangible ways to build value. In the face of the Covid-19 crisis, the default is that we need the state, from service provision to funding to managing the money supply, to come to our aid and remain in control. 

But is that really where we’re heading?

We tend to overestimate the effects of technology and innovation in the short term and underestimate it in the long term. (Unfortunately, not my own pearl of wisdom but that of futurist Roy Amara.) Today, with stock markets and the real economy in disarray, it feels like the value of bitcoin and other cryptocurrencies just starting to be understood. This is not something that will happen overnight, but bitcoin was born out of the last financial crisis; it is likely that it will help us out of this one.

Validating the white paper

The thesis behind crypto is, you could say, very (pre-Covid) 2020. Create a decentralised, non-political, non-geographic based currency that is both digitally-encrypted and has a limited supply, as well as having the full feature set of a currency. The usefulness of these attributes has been advancing for years.

And while the need for redistribution of wealth accelerates, with democracies around the world turning to universal basic income and cash handouts, the limits of the fiat-based global financial system are thrown into sharp relief. Is crypto finally coming of age?

People have been waiting for a watershed event like this. As cashless societies get bigger and fiat currencies become increasingly manipulated, stimulus packages will weigh heavier and heavier on debt-to-GDP ratios. This is exactly what happened in the last crisis, where we saw 120% debt-to-GDP ratios. Debt servicing will be costlier, while the poorest in societies start to feel the burn of inflation, and everyone feels the burden of rising taxation and a manipulated money supply. The relative value of those currencies will drop. 

The former governor of the Bank of England Mervyn King (now Lord Lothbury) believes that the coming crisis caused by the coronavirus in the real economy will be worse than the financial crisis of 2008. He told the BBC last month that: “in the financial crisis, we were dealing with a relatively small number of financial institutions. We knew broadly what we had to do. In this case, the situation is extremely uncertain.”

For anyone not around at the time, take my word for it – it was pretty bad.

Despite some sell-offs, for many, bitcoin currently represents a hedge in the face of huge stock market risk.
Despite some sell-offs, for many, bitcoin currently represents a hedge in the face of huge stock market risk.. Photo by Austin Distel on Unsplash

An unlikely safe haven

From a central bank point of view, the coronavirus crisis is different to almost any standard economic shock in that it necessitated both supply and demand intervention. 

And while global markets reel, bitcoin, and other cryptocurrencies, have remained largely unaffected. Bitcoin’s most disruptive benefits have moved front and centre: scarcity and liquidity, in a world of money-printing and global financial strain.

Clearly, despite some sell-offs, for many, bitcoin currently represents a hedge in the face of huge stock market risk. And with institutional flows coming in, the foundation is well and truly being laid for it to be traded with trust and confidence. The super-speculation, which feels more like the dotcom era and subsequent crash, is waning. Institutions and other large financial organisations are now more engaged than ever, with the likes of Fidelity, Square, and Revolut all facilitating trading. And India has finally lifted its crypto trading ban.

CoinCorner, a bitcoin exchange in the UK, says it has seen a growing number of people entering the bitcoin market in 2020, perhaps also in the run-up to the anticipated bitcoin halving in May. If you don’t know about halving, there is a good explainer here. CoinCorner says it saw an increase in the number of new customers every month since the beginning of 2020 with February up 5% compared to January, and March was up 17.6% compared to February. 

We could, of course, see new innovations in the crypto space come out of this crisis. But certainly the euphoric frenzy (based on not very much) that we saw in bitcoin’s earlier days has come to an end, and now, investors on both the institutional and retail side are interested. The start of something more legitimate for financial asset allocation has arrived. And an asset immune, even somewhat, to the volatility and uncertainty of the present time, could be a saving grace to millions.

Bundeep Singh Rangar is a noted figure and investor in the blockchain, technology and digital industries. He is considered a thought leader and has spoken at events about blockchain ranging from the South Summit in Madrid, Insurance 2025 in London, the FinTech & InsurTech Digital Congress in Warsaw and Rakuten’s Technology Conference in Tokyo. He has written and been quoted in several articles as a key player in the blockchain industry, such as CityAM about “The Insurance Industry Needs to Embrace Blockchain Starting Now” and the FCA’s regulatory sandbox acceptance of blockchain firms. Mr Rangar was credited for raising $36 million for his London-based insurtech firm PremFina from Rakuten Capital, Draper Esprit, Thomvest Ventures, Rubicon VC, Emery Capital and Talis Capital and has raised more than $300 million in debt funding for a variety of his investments from American, European and Canadian financial institutions. He has been featured in publications such as Bloomberg News, Forbes, The Telegraph and The Times and is a frequent guest on Bloomberg TV, the BBC, CNBC and CNN (more at www.rangar.tv). He has personally invested in blockchain companies internationally, such as: Black insurance, based in Estonia, provides a blockchain platform to enable the underwriting of new insurance policies faster and cheaper via insurance syndicates akin to the Lloyd’s market. Co-investors include Concentric. IDEO CoLab, based in San Francisco, which focuses solely on accelerating the world’s best blockchain entrepreneurs and start-ups. IDEO CoLab is a subsidiary of global design company IDEO, which counts Apple, Google, Nike, and Ford among its clients. Nivaura, based in London, which provides a white-label capital markets platform which is licensed to clients on a white label basis, enabling fully automated securities issuance and executions using either existing capital markets infrastructure or blockchain infrastructure. Other investors include the London Stock Exchange Group and Digital Currency Group. Phunware Inc., based in Austin, Texas, provides multiscreen as a service customer engagement platform that enables brands to engage, manage, and monetize their users worldwide. The company’s investors include the Draper Network Fund, Samsung and Cisco Investments. Wave Financial, based in Los Angeles, undertakes early-stage investment, asset management, treasury management and strategy consulting to enhance the adoption of blockchain technologies worldwide. Co-investors and AUM funders include Tim Draper, Scott Walker and Brock Pierce.

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