September 30, 2020
Cryptocurrency isn't a new concept, but it's only now that more people are seriously considering it as a viable alternative to fiat currency. In fact, TechCrunch points out that cryptocurrency has even more uses beyond being a form of electronic cash due to the technology underneath it – blockchain. This technology can improve frictionless transactions of all kinds, as well as increase financial transparency and security. Yet despite these benefits there still continues to be tight regulations over cryptocurrency across the globe.
This stance may now change due to the pandemic, with many physical processes shifting to digital and contactless. And even beyond 2020, it's likely that cryptocurrency will explode further due to these three key trends:
Banks starting to hold crypto
Since time immemorial, banks have served as a custodian for valuable objects of consumers. But now, Fortune reports that they will be able to hold cryptocurrencies too, all thanks to a new policy by a federal banking regulator. In a letter published by the Office of the Comptroller of the Currency (OCC), it was noted that national banks and savings associations are now permitted to engage in custody service for their respective clients.
This is a huge leap, considering how major banks have long avoided crypto. The policy now enables them to open crypto operations, which have usually been under the purview of companies like Coinbase and BitGo. Moreover, with banks having custody over cryptocurrencies, it allows for a lucrative line of business. This is because the market cap of popular cryptocurrencies amounts to billions, with the custodians usually charging fees of 0.25% for safeguarding. With more banks taking advantage of this it's likely that more people will be inclined to invest in crypto. Knowing that their trusted financial institutions will hold their digital coins for them will give them confidence in the stability of the digital currencies.
Continued and rapid rise in the popularity of digital coins
It's not the ideal scenario, but it's evident that the pandemic has prompted the resurgence of Bitcoin and a slew of other digital currencies. Bitcoin has more than doubled since March, and has even outpaced gains in equities and precious metals amid a plethora of liquidity released by banks to alleviate the devastating economic impact of the pandemic. As mentioned in our Life After COVID post, crypto is seen as a non-correlated investment option, as well as a safe haven asset.
This resurgence isn't surprising, considering how popular currencies like Bitcoin and Ethereum are the first ones to dominate the market. Bitcoin is expected to grow up to 200% in the next two years, making now the perfect opportunity to buy in. Investors are also starting to view it as a store of value if inflation continues to rise, which is expected given the situation the world is facing today. With the price being a little over $10,000 at the time of writing, experts note that it won't come as a shock if it manages to reach $13,000. Meanwhile, Ethereum and Litecoin are also soaring, valued at $350 and $47, respectively.
Central banks launching their digital currencies
It's no secret that the decline of cash use has accelerated due to the ongoing pandemic, but WeForum underscores that it also resulted in the emergence of central bank digital currencies (CBDCs), which could potentially upend the existing global economic hierarchy. The People's Bank of China (PBOC) has already ramped up plans to replace cash with e-RMB in an attempt to avoid collecting paper money from high-risk environments. The Deutsche Bank Research also revealed that many central banks are launching similar projects, with 20 digital currency initiatives being led across all regions globally.
Ultimately, though, the main goal of these CBDCs is efficiency and effectiveness. After all, digital currencies eliminate the typical operational and security issues linked to money transmissions. This makes global trade more efficient and less risky due to increasing transparency and traceability. This in turn will lead to greater protection against money laundering and other financial crimes. There may still be a long way to go until these digital currencies enter mainstream adoption, but they have a big chance of transforming how money is managed and used worldwide.
Article written by Cassie Thomas
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