The discussion will continue to rage over bitcoin’s importance along with other cryptocurrencies in a volatile and frantic market.
About three years ago, Goldman Sachs was believed to be toying with the thought of introducing a bitcoin trading table, a move that could have spectacularly legitimized cryptocurrencies. Up until then, they’d commonly been viewed as the purview of speculators, criminals, and nerds.
It was the start of Bitcoin’s glory days. Its value rose meteorically at the end of 2017 and reached a record high just below $20,000. It was hailed as a haven, and considered by many the new gold.
In the first quarter of 2018, the bitcoin bubble burst to lose most of its value virtually overnight. An excruciating tailspin of investors scrambling for security came to an unfortunate conclusion; comparisons between bitcoin and gold appeared misguided. The volatility of the cryptocurrency market has proven to be way too hot for many to handle.
Fast forward to mid-March 2020, as worldwide stocks endured their most challenging trading periods in decades, Bitcoin’s value rose 26% in a single day, the most significant rise in 7 years. Its value has recovered since and has, in fact, outperformed gold through summer 2020. However, it’s volatility was much higher than the last twelve months, it resembled a busy roller coaster of surges & crashes while gold recorded a steady climb.
The volatility of cryptocurrency
In a presentation to clients in May, Goldman Sachs, in a turn of sentiment from only a couple of years back, explicitly recommended against purchasing Bitcoin, although the volatility of the cryptocurrency could lend momentum to oriented traders.
Others also have expressed doubt over cryptocurrencies’ actual value as a viable investment vehicle, especially during periods of financial crisis and considering extreme price movements. Recent slumps left some funds weaving. The cryptocurrency hedge fund Adaptive Capital, shut operations forever in May, citing the risks related to such an unstable atmosphere outweighing any likely benefits.
Neil Wilson, the chief industry analyst at Markets.com, described cryptocurrencies as not a viable substitute for fiat currencies. Since they are not defined as a government-issued currency and not supported by an actual commodity, presenting several drawbacks.
A report published by academics at the Faculty of Leiden in the Netherlands this past April warned that an absence of legal clarity posed a threat to investors if crypto custodians go bankrupt. “Clear and generally accepted regulations to cope with legitimate chances arising from crypto custodians’ insolvency are currently absent,” the experts concluded.
But for every skeptic, there appears to be an enthusiast contesting the decentralized dynamics of cryptocurrencies that comes with limited supply, which permits them to be an excellent hedge against present geopolitical tensions, hyperinflation, and repercussions of financial policy.
The digital currency game
Managing director at Gemini, Julian Sawyer, a regulated New York-based cryptocurrency exchange and virtual asset custodian, says it is crucial to concentrate on crypto’s importance over the long run as well as its array of possible uses.
“Cryptocurrencies and blockchain technology aren’t passing fads, as they will play a big function in our future,” he says. “COVID-19 has shaken the global economic climate. Financial services industry and individuals are re-evaluating the concept of personal finances and how to protect themselves against financial difficulties during an unprecedented global economic upheaval .”
Sawyer, who co-founded Starling Bank, states low-interest rates and generally higher volatility in the stock markets, have pushed far more participation in the crypto markets and blockchain technology, which is a direction that is apt to continue. As the need grows, the market will mature and grow along, he says, helping tackle issues for customers around internet security and privacy, for instance.
Bitcoin and Ethereum are presently the largest cryptocurrencies by capitalization, though others are emerging fast. Basic Attention Token (BAT), which is characterized as a “utility token” instead of a currency, is meant to be exchanged between holders, publishers, and advertisers over a blockchain-based platform to understand and monitor how folks engage with online content. Orchid is a cryptocurrency that may be harnessed to purchase additional bandwidth for internet protection. Another promising crypto project is Chainlink, a platform that strives to bridge the gap between self-executing smart contracts on real-world applications and blockchain.
“As these use cases develop, there’ll be much more long term viability for cryptocurrencies beyond trading and speculation,” says Sawyer.
Mustansar Iqbal, chief executive of Auto Coin Cars, a cryptocurrency auto trading platform, also states that cryptocurrencies are starting to be much more resilient as an asset category than they once were, despite volatility.
“The dip which occurred during this particular crisis was much smaller compared to the previous dip in 2018,” he states. At that time, bitcoin fell to a market value of around $3,100 and took a few months to recover. By June 2018, bitcoin was trading at approximately $9,700.
“Cryptocurrency assets continue to be a reliable option for the general public,” affirms Iqbal, “and could thus be reasonably classed as a practical choice for the long term too.”
Testing the limits of the crypto market
While stock markets around the world crashed in March, cryptocurrency trading volume skyrocketed. Rendering cryptocurrency exchanges the real winner in the first half of 2020.
Consistent data on cryptocurrency trading volumes across almost all platforms is challenging to gauge. Still, based on the website CoinDesk, US-based cryptocurrency exchange Coinbase, the most popular cryptocurrency retailer in the world, reported record trading volume in mid-march, when stock markets tumbled.
Website Cointelegraph, meanwhile, reported that cryptocurrency exchanges encountered the most massive Bitcoin inflow ever. Trading volumes reportedly increased significantly for Ether and other so-called altcoins, such as Chainlink, Tezos, XRP, Litecoin, and even Bitcoin cash.
Though the quick influx in trade volumes similarly uncovered several vulnerabilities within the infrastructure that underpins electronic crypto trading. Gemini experienced a brief outage while Seychelles-based BitMEX, a key platform for leveraged derivatives trading, also went down for a short time due to remarkable rise in inactivity.
The bottom line is how to determine the value and security of Bitcoin, and other cryptocurrencies in a world turned upside down by the COVID-19 pandemic. The significant increase in volume and market capitalization in the cryptocurrency arena shows a lack of trust in the traditional financial systems. Private people and institutions are realizing that the only way to protect the value of their wealth, is to take power away from central banks and governments and put it in their own hands. Blockchain technology and cryptocurrencies allow just that, considering that fiat currency’s value is also questionable in an uncertain post-pandemic future.
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