The Pandemic And Cryptocurrencies

I have heard many young adults say, it’s not just an investment, it’s our future. There are even reports of a 9 and and 12 year-old sister and brother mining crypto, and earning over a 100,000 dollars a month during the pandemic.

Even with severe instability in the economy, thanks to the pandemic, the frenzy for investing in cryptocurrencies has only been gathering momentum. And it’s not just the young! People all around the world are investing in this new currency form.

Bitcoin, that was around 4,000 dollars until right before the spread of the Coronavirus, has gone on to reach 60,000 dollars. Along came other cryptos during this period, such as Solana. Solana was worth under a dollar as recently as May 2021, and is now quoting at over 250 dollars.

Countries such as Costa Rica and the Philippines have also decided to integrate cryptocurrencies into their economies. Costa Rica announced that employees could be legally paid in Bitcoin and the Central Bank of Philippines authorised several crypto exchanges. 

Notwithstanding the fact that the pandemic continues to create ruinous damage to economies, the use of digital currencies keeps growing in quantum jumps. More than half the banks in the world are said to be working with implementing digital transfers. Add to that, more than 100 countries that do not have a good banking system which makes the efficiency of crypto very appealing.

Despite ballooning government debts, gold, has kept within the band of 1,500 and 1,800 dollars during the Coronavirus.

Historically, it has been treasury bonds, gold and real estate that are seen as a safe haven. But despite the scenario of huge government debts and the pandemic, there have only been some cryptocurrencies that have been outperforming. In fact, a few have been buoyant way beyond expectations.

Now comes inflation during the pandemic. The average annual inflation which remained at below or around 2 percent until 2020 in the developed world, jumped to between 5 and 7 percent during the current year depending on which country we are talking about. 

Risk and returns are always interwoven. Hedging against inflation is always prudent. According to many an expert, many of the crypto currencies are going to be a better hedge compared with gold and will continue to outperform the markets. 

Those with deep pockets, including institutional investors will likely continue to invest in Bitcoin. Many others, including youth, will probably have to invest in other cryptocurrencies such as XRP ripple and Solana. 

It’s extremely difficult to see crypto as a good diversifier such as gold but the market seems to think otherwise regardless of the huge dips and spikes. 

As a bottom line, it seems impossible to examine the issue. Is crypto actually the future or just a pseudo safe haven?

The prices indicated in the article were the ruling prices at the time of writing. There has been significant volatility since then and most of cryptocurrencies have lost between 20 to 30 percent of the value. In our assessment, all asset classes are risky and a careful view must be taken before making investments. In fact, it’s prudent to obtain expert opinion, always.

Picture : Shutterstock / 1854624547


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