What Today’s Financial Uncertainty Means for Cryptocurrency Investors
Here in the Wild West World of blockchain technology and FinTech, we who are genuinely invested - not just literally in tokens, but philosophically in the technology behind it - have quickly learned to keep cool heads and stay agile to be adaptive as the cryptocurrency market swings in manic depressive mayhem, and significant innovations evolve almost spontaneously in response to new possibilities, presenting fresh opportunities to a new breed of investor.
From February 20th, 2020, the year some call “The Great Suppression,” global finance saw its fastest crash in history, followed by record-breaking rebounds and continued volatility.
Company earnings reports, which impact a stock’s price, especially when the numbers don’t coincide with investor expectations, were often not given this year due to COVID-19 market uncertainty. Almost half of the S&P 500 companies declined to offer guidance with second-quarter earnings reports this year. While wild moves in smaller stocks are expected, the pandemic-induced crisis, including mass government shutdowns of businesses deemed “non-essential,” created unexpected wild swings, even in larger company stocks. This increased volatility may have brought more conventional investors over to the once foreign financial terrain of cryptocurrencies, searching for a safe haven.
Graph Credit: Financial Times, August 9th, 2020
Many investors are concerned about the threat of inflation as even the USD, with its esteemed status as the global reserve currency, now sees its monetary supply grow exponentially and to an extent never before seen in history. According to Morgan Stanley’s chief US equity strategist, Mike Wilson, the danger of hyperinflation is real. Wilson noted there is now a “greater likelihood for inflationary pressures to build.” And added that “the most powerful leading indicator for inflation has already shown its hand — money supply.”
Historically, diversification has been regarded as an effective way to stabilize investments in uncertain times. Particularly turbulent times demand investors to hedge their investments.
Diversification remains the only time-tested technique to reduce risk exposure. Cryptocurrencies offer this diversity but with an inherent history of their own volatility.
Amid times of economic crisis, investors also seek security. Today much like the Great Recession of 2008, that means a surge in interest and investment in precious metal, most notably gold with its prodigious history of retained monetary value over thousands of years. Cryptocurrency offers investors a digital alternative to portability and transfer of gold and options in other precious metals like silver.
In March, the demand for the two most liquid gold-backed token projects, Paxos Gold (PAXG) and Tether Gold (XAUT) surged, to keep up with demand. Both tokens represent a legal entitlement to an ounce of gold stored in institutional vaults. Investors should beware of difficult-to-recognize scams or even tokens with misleading names like Bitcoin Gold (BTG), which is simply a fork of the Bitcoin blockchain, or GoldCoin (GLD), which isn’t backed by physical gold but is a fork of Litecoin.
Bitcoin (BTC), the first and most trusted of cryptocurrencies, has now gained not just market share and value - currently hovering at around $13,500 per Bitcoin - but new status as an investment diversification with mathematically programmed scarcity, un-inflatable by any government body. Fidelity has recommended certain investors include a 5% allocation of it in their portfolios in their latest Bitcoin Investment Thesis released October 7th, 2020. The report analyzes Bitcoin as an “uncorrelated alternative investment that may provide portfolio optimization benefits.”
More daring investors who embrace the realm of cryptocurrency may believe the centuries of blind faith in third parties like central banks, financial institutions, law firms, and government regulatory bodies, with often disastrous results of incompetence and disregard for investors, are coming to an end. DeFi or Decentralized Finance is enjoying a boom in popularity with features like yield farming and liquidity mining gaining a more significant share of market investment and attention and participation. Perhaps the challenges we now face in our current global financial uncertainty will serve to illuminate the decentralized blockchain-based technology of a system secured on code, guaranteed not by man but by mathematics.
Certainly, flaws exist in the world of DeFi, and developments will be crucial for growth and adoption. Let’s remember the early years of cryptocurrency, recognize the vast opportunities ahead, and realize with innovation; it’s only a matter of time before these issues are resolved. There is excellent potential for DeFi to thrive, whether separately or in coordination with traditional financial systems.
New innovative solutions to ease our current economic crisis will be welcomed by a world ready for change. Cryptocurrency investors have been at the avant-garde and stand ready to lead the way. Join us at Beyond Enterprises as we navigate these new exciting worlds in cryptocurrency, blockchain, and DeFi together.
