Singaporean DBS Bank recently issued an exhaustive report on the state of digital currencies. Among the many observations and conclusions, the multinational bank’s analyst, Taimur Baig, laid out a compelling case for cryptocurrencies’ bright prospects. The major force behind this shift in perspective lies in the government’s coping with the COVID-19 pandemic.
Extreme Monetary Policies Lead to… Bitcoin Adoption?
When a nation’s most powerful institution, in this case, the Federal Reserve, goes on an unprecedented money-conjuring rampage, you don’t need a sophisticated education in economics to be alarmed. If something can be created out of thin air to such an extent, like the USD, what value does it truly hold? More importantly, how will it hold in the future?
Such concerns represent the root cause of the post-covid shift in people’s perception of cryptocurrencies. Taimur Baig, the author of the DBS Bank report on digital currencies, is a veteran of the financial industry. He previously served as a senior economist at Deutsche Bank, IMF, and the Monetary Authority of Singapore.
In the report, Baig begins from the basis of a forked cryptocurrency demand – pre-covid and post-covid. Accordingly, Baig notes the following trends that will accelerate the adoption of bitcoin, and perhaps other digital assets.
1. Bitcoin as a Viable Alternative to State Money
The totality of about 2,500 cryptocurrencies currently holds a market cap of $360 billion. Of those, Bitcoin is by far the dominant one, ahead of the second largest digital asset, Ethereum, by six times. Accordingly, Bitcoin holds the market cap of about $170 billion, accounting for nearly half of all cryptocurrencies ever created.
This is why when people talk about cryptocurrencies, they almost always refer to Bitcoin. As its value rises or falls so do the values of all other cryptocurrencies. Many people have become Bitcoin millionaires overnight based on Bitcoin’s fluctuations alone. Over the years, this did not go unnoticed by the legacy media, increasing the market cap and trading volume.
However, in the post-covid era, Bitcoin is transitioning from a speculative asset for a quick money-making scheme to an asset that is not tethered to the nation’s fortunes and the workings of its financial institutions. Due to its fixed number of coins and cryptographic blockchain, Bitcoin is inherently resilient against inflation and tampering from central entities — unlike the leading currencies of today.
This is so prevalent today, that the U.S. government printed more money in June of 2020 than in the first two centuries after it was founded. Surprised yet?
2. Customers Demanding Bitcoin in Traditional Financial Institutions
Nothing spurs the adoption of new financial products like integrating them with the existing financial infrastructure. Following the COVID-19 stupor, banks across the world are starting to implement Business-to-Business (B2B) solutions to meet the demand of customers who would like to invest in digital assets within a familiar financial environment.
Additionally, customers who see Bitcoin as a bastion against inflation also see gold in the same vein. Both assets exist to safeguard wealth independent of what happens with a nation’s economy.
And banks are the ones that traditionally store gold. In the coming years, it’s possible to see banks expand this feature with Bitcoin, as the modern complement to gold, or digital gold, if you will.
3. Bitcoin as a Refuge from Failed State-Run Currencies
Following the massive explosion in Beirut, Lebanon’s currency depreciated by 80%, dealing a fatal blow to the economy. Other nations have similar woes, such as Venezuela and Iran. In all of them, COVID-19 significantly exacerbated conditions on top of international sanctions posed by the US.
Outside of nations locked out of international financial markets, many will experience hyper-inflation periods which could lead to a currency crisis. But what if the USD is on the same path? In the short run, Baig concludes that tethering these currencies to USD may work, but pegging them to cryptocurrencies should also work if pegged to a limited-circulation currency.
The latter, many now anticipate, will only see more demand as the results of the pandemic — and subsequent government responses — are truly felt.
More and more people are diversifying their assets into gold, Bitcoin, and stocks. With which one are you most confident in the long haul? Let us know in the comments below.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.