From a global pandemic to the worst economic downturn since the Great Depression, the year 2020 has been a harrowing wake-up call for epidemiologists and economists alike.
Encouragingly, outside of a handful of mishandled responses, the current global strategy for managing the pandemic has been remarkably successful. With multiple COVID-19 vaccines now either ready for mass distribution or entering the final stages of successful trials, the severity of the virus should begin to fade in the coming months.
Unfortunately for economists, these positive sentiments have had little impact on state of the global economy. Faced with supply chain disruptions and lockdowns, many of the world’s largest economies have been thrown into recessions, skyrocketing volatility in equity markets and shuttering thousands of small and medium-sized enterprises. In the US alone, the Bureau of Labor Statistics has reported a 6.7% unemployment rate — in common parlance, this figure translates to 10.9 million unemployed Americans.
Similarly, in the hospitality sector, developments in vaccine testing and distribution have failed to restore confidence in key industries, almost all of which are reliant on in-person contact (i.e. travel, lodging, food, and recreation business). According to this Economic Impact Report, permanent business closures due to COVID-19 reached 97,966 in September of this year. Judging from this forecast, the hospitality industry may be a useful barometer for the short-term future of in-person businesses.
With government stakeholders and public health policymakers still fixated on pandemic management, jittery retail investors and risk-averse asset managers are understandably concerned by the prospect of secondary recessions or even depressions. Fearful of further downturns, many investors are increasing their exposure to comparably stable growth options in the decentralised finance (DeFi) and cryptocurrency space.
Despite regulatory difficulties and a raging pandemic, bitcoin, a bellwether for the broader cryptocurrency market, has experienced a spectacular year of growth. While equity markets zigzag between extreme volatility and lethargic rebounds, the price of a single bitcoin has soared, rising by 170% year-to-year to reach $19,850 (breaking its previous all-time-high in the process).
Bitcoin’s bullish price outlook in the face of near-constant economic turmoil has prompted many investors to use it and other blockchain-based assets as a functional safe haven against pandemic-related volatility. To service the sharp uptick in retail investor demand, bitcoin ATM (BTM) operators like CoinFlip have amped up their over-the-counter capacity, installing more than 12,780 kiosks across 71 countries. CoinFlip, the world’s largest BTM provider, has already rolled out 1,000 machines across the US, each of which can support buy/sell transactions for 10 major cryptocurrencies.
In a recent interview, Ben Weiss, the COO of CoinFlip, discussed the booming growth of the BTM and cryptocurrency kiosk industry. “In the last 6 months, more bitcoin ATMs have been installed in the last 6 months than the last 5 years combined” said Mr. Weiss.
“People are looking at bitcoin as a safe-haven asset,” he continued. “Bitcoin feels like a safer and more stable investment than more traditional investments.”
The spectacular growth of bitcoin and the BTM industry is clearly derived from demand-driven conditions from both traditional institutional investors and disenfranchised communities looking to make returns. Not only does bitcoin facilitate a more transparent and secure transaction framework, but it also democratises the rigid access hierarchies of the traditional financial system, thereby giving people in less developed countries the means to interact with the rest of the global economy. Cryptocurrency markets also synergise well with the emancipatory potential of De-Fi applications, giving investors the ability to earn yields on their digital token holdings.
The build-up in mainstream support for cryptocurrencies can also be linked to a growing lack of confidence in traditional money systems. This mounting sense of distrust has been further exacerbated by soaring levels of government debt and quantitative easing programs in the US and EU. Reminiscent of the 2009 financial crisis, these money printing programs threaten to raise inflation, undermining the general utility of fiat currency and weakening the purchasing power of deposited savings.
The result of this shift in attitudes is that more people, in more places, now want rapid access to bitcoin and other cryptocurrencies. As public and private demand continues to soar, digital tokens like bitcoin are no longer on the periphery of global asset portfolios. Even though many projects are still in their infancy, crypto and DeFi are already making waves across the financial sector, and mainstream institutions have been left reeling from the implications. From the restructuring of traditional financial service offerings to the expanded capital access now available to retail investors, cryptocurrencies are shifting the foundational structures of global business.
With the traditional financial system wracked with volatility and hamstrung by a brittle dependence on inter connectivity, the future is looking very bright for decentralised finance.