In the age of COVID-19, it’s surprising to some that there has been a considerable uptick in cryptocurrency investment this year, which has recently driven the price of Bitcoin above $20,000, and has seen trading volumes of certain cryptocurrencies tripling throughout the first half of the year. As we make our way through the uncertainties of a global pandemic, many are turning to cryptocurrencies as a means to safeguard their wealth. For the uninitiated, it seems counter-intuitive to now invest in an asset known for its volatility. So why is it that the cryptocurrency industry is booming and making headlines when some economists are calling this one of the toughest economic periods since the Great Depression?
Why has cryptocurrency taken off?
To explain the inverse relationship between a poor economic outlook and heightened cryptocurrency investment, we have to first look at the origins of cryptocurrency itself. Many cryptocurrency enthusiasts will tell you that Bitcoin emerged as a direct response to the GFC in 2008 and the instability caused by fractional-reserve banking. As the fallout of the financial crisis saw people losing their life savings, Bitcoin emerged as an asset that could potentially retain its value when governments had to rely on unconventional monetary policies such as quantitative easing, which in effect devalues national currencies.
Bitcoin was designed as a decentralised asset that would be resistant to manipulation during major economic events, in the same way that gold retains its value. And like gold, Bitcoin is a finite resource; with a cap of 21 million Bitcoins to ever exist, we cannot simply ‘print more’ Bitcoin – Bitcoin is inflation proof.
Turning to cryptocurrency in uncertainty
With that historic context in mind, it now becomes much clearer as to why people have been buying up crypto in the midst of a global pandemic, as the spectre of the devaluation of national currencies is raised once more. While older investors are attracted to gold in times of economic uncertainty, we’re seeing that younger investors are looking to hold cryptocurrencies, and in particular Bitcoin, which is the first cryptocurrency to ever gain widespread attention on a global scale (unlike previous failed attempts at creating new electronic currency systems including B Money and Bitgold, which both served as an inspiration for Bitcoin). In fact, in a recent analysis of our own user activity, we found that cryptocurrency purchases in Italy increased threefold in the week that lockdowns hit the country.
Equally, accessibility plays a major factor in the latest rise in cryptocurrency ownership.
When we first started developing our cryptocurrency exchange feature in 2015, cryptocurrencies were still very expensive to purchase with fees sometimes over 10%, and figuring out which services were legitimate and which were not was a risky business. One particularly weird method I tried was using a website that allowed you to buy Linden Dollars, a currency used in the video game Second Life. Once you had Linden Dollars, you were then able to buy Bitcoin with them. This was a very expensive exercise, which in effect took a 10% cut when exchanging into Linden Dollars, and then another 10% cut when those Linden Dollars were converted into crypto. And holding a bunch of Linden dollars for a game you never played definitely makes you question your life choices. In the early days of crypto, it was also exceedingly risky to purchase cryptocurrencies; on multiple occasions, I found myself sending bank transfers to strangers on the internet and simply hoping for the best. My bank also started to get nervous and phoned me up to ask what I was doing. “Buying magic internet money from people I’ve never met” was definitely not the answer they wanted to hear.
Evolving purchases of cryptocurrency
Since then, legitimate cryptocurrency exchange services have emerged and made the process much safer and simpler, popularising cryptocurrency in the same way the internet browser made the internet accessible. By way of example, over 6,000 Revolut cryptocurrency accounts are activated per day in Europe, with over 1 million users now using the feature.
Through legitimate exchange services and great non-custodial and custodial solutions for storage, people are now able to own crypto without the headache of having to know the ins and outs of blockchain technology. I’m a firm believer that you don’t need to know how to weld circuit boards yourself in order to use a computer, in the same way, you shouldn’t have to be a blockchain expert to access cryptocurrencies.
With cryptocurrencies now much more readily accessible, crypto has become a more feasible investment option for the average investor.
While 2020 was always going to be a big year for cryptocurrencies, nobody could have predicted the challenges ahead which would drive interest to its current levels. We’re also now seeing a number of large financial institutions getting behind cryptocurrencies, and legitimising what has long been considered too on the fringe to support. So while we’re facing some challenging times, what we’re witnessing now could be a major turning point in the history of cryptocurrencies. What happens from here will likely be an economic history lesson which will be referenced well into the future.
Main image source: Shutterstock (JadedQ)
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About Edward Cooper
Edward Cooper is the Head of Crypto at Revolut. He joined Revolut in 2015 as the second employee as Head of Mobile, and helped grow the product to 200,000 active users with £500,000,000 in client funds transacted in under a year, and 11,000,000 million users worldwide in just under 5 years.
Edward has scaled the mobile team from 1 to 100+ developers worldwide and in his capacity as one of the first Product Owners at Revolut, helped launch many of the original products at Revolut including Cryptocurrencies, Vaults, Budgeting, P2P payments, and many other popular features.
Prior to that, Edward worked for CMC Markets, one of the largest CFD / Spread Betting providers in the UK, leading mobile development.