The Covid-19 Crypto Craze

You might have noticed when you checked the price of Bitcoin (BTC) on 27th July that it had tipped over the $10,000 point and is continuing to rise. It was pretty unusual for a Monday, as there is usually a dip after a weekend. Not so in July..

Ron Shevlin is just one of the fintech writers and Snark Tank analyst who saw this shift as ‘The Coronavirus Crypto Craze’. He asked, “Where is this Coronavirus-fueled trading volume coming from and who will drive the future growth?” It was, and still is, a good question.

According to Cornerstone Advisors, 15% of Americans now own crypto in some form, and just over half of these people invested in cryptocurrency for the first time during the first six months of 2020. Furthermore, these new investors obtained roughly $67.5 billion in cryptocurrencies, averaging out at around $4,000 per person. 

This new penetration in the USA brings it into the Top 10 countries when it comes to crypto ownership, although it still has surpass Turkey (20%) Brazil and Colombia (18%), Argentina and South Africa (16%).

Who is buying crypto?

But what we all want to know is this: who has been on a BTC buying binge during the months when the pandemic forced people to stay at home across the world. Although, of course, if you’re at home, that’s the perfect place form which to buy crypto.

High-income men with postgraduate degrees account for eight in 10 buyers, and have an annual salary of around $130,000. Then there are the Millenials and Gen Xers. Millennials (26 to 40 years old) comprised 57% of the consumers buying cryptocurrency in 2020 with Gen Xers (41 to 55 years old) accounting for 30%. Baby Boomers hardly feature accounting for only 3% of crypto consumers, and Gen Zers are similarly thin on the ground at 7%.

Significantly, the majority of buyers are customers of traditional banks rather than the new digital challengers, which is surprising. Shevlin reports, “Of the consumers buying cryptocurrencies during the Bitcoin binge, almost half—47%—are customers of Bank of America.” By contrast only 6% of the 2020 BTC buyers use a digital bank as their primary bank.

Financial health and first time buyers

Another interesting revelation from the study is, “44% of Americans who have already invested in Bitcoin and other cryptocurrencies said that their financial health is “much better” since the beginning of the Covid crisis,” whereas only 5% of all other US consumers agreed with this statement.

The first time investors are an interesting group. In some ways similar to established crypto owners, they differ in one respect: they’re changing up the financial institutions they do business with.

Half of the first timers switched their primary banking relationship in the past six months—one-third did so in the past three months alone.

The key takeaway from all this is, as Shevlin says: “

 All banks—in particular, community banks and credit unions—should look at opportunities to provide Bitcoin wallets and other cryptocurrency trading services as a way to differentiate their services.”

Are crypto exchanges poised for a growth explosion?

What will the financial sector look like in 2030 after spending the decade challenging the incumbent financial services? Leeor Shimron, a Forbes Contributor, believes that crypto exchanges are poised to capture the growth in this space.

To date, crypto exchanges have provided users with a first contact point with an ever-increasing range of crypto assets. Lets’ not forget that the first crypto enthusiasts were retail investors who for the first time were able to access a new asset class before the institutional investors. As a result, most exchanges, such as Coinbase and Binance, were set up to service demand from the retail investor. For example, as Shimron remarks, “In just 8 years, Coinbase propelled crypto to the mainstream serving over 30 million users.”

Follow the Internet’s history

There have been several commentators who have suggested that the crypto story is very similar to the emergence of the Internet. The Internet was a fundamentally disruptive and paradigm shifting technology, and crypto very well may exhibit similar changes, mimicking the growth in Internet usage.

Illustrating this claim, Shimron cites the statistics: “User adoption of the internet reached 10% of American households in 1995, five years after the first web browser was launched. User adoption reached 50% in the U.S. by the year 2000.” Currently, US adoption of crypto is at around 5%, and hasn’t seen the same rate of adoption as the Internet. This is caused by “issues of scalability, privacy, and ease of use,” something that the Internet also had to overcome.

However, if Bitcoin’s growth story follows that of the Internet, it should achieve user adoption of between 20–50% by the year 2030.

Crypto exchange growth

Shimron applies a similar metric to exchange growth. He writes, “To project future exchange growth in the U.S., I assumed 5% user adoption of crypto in the US currently and calculated revenue growth if user adoption reaches 10% (conservative case), 20% (base case), and 50% (optimistic case) in the year 2029.”

The resulting scenarios for 2029 in terms of exchange revenues are: “$1.9 billion in the conservative case, $3.8 billion in the base case, and $9.6 billion in the optimistic case.”

He also remarks that although the 50% adoption may seem far-fetched, there are indicators supporting it, including ample growth potential amongst retail investors and demographic changes over the next decade, with more 18–39 year olds living in cities and being more familiar with digital technologies and virtual goods. These millennials will also inherit $68 trillion from the baby boomer generation by 2030, and they are looking for new ways to generate yield and store their wealth.

So, the future for crypto exchanges is bright, “as new use cases and killer apps emerge,” alongside retail users flooding the market and exchanges capture this growth.

We’re back on the bitcoin rollercoaster

Last week the hotly anticipated bitcoin halving took place. As you probably know by now, this event happens around every four years and cuts the reward miners receive for each new coin they create in half. The halving took place without any incident, and bitcoin owners are hoping that they will see the same surge in price that followed the two previous halvings. It has to be said that this is unlikely to happen this month, and we may have to wait for 12 months to see the true effects.

BTC could hit $100,000

Some enthusiastic bitcoin supporters, namely the Winklevoss Twins, said, “We’re set for another order of magnitude step up — whether $20,000 is the bitcoin base, maybe we see $100,000.” As we know, big numbers for bitcoin have been a feature of the headlines for quite some time, but we would all be well advised to take a ‘let’s see’ approach to investing in it.

One thing we must keep a vigilant eye on is the mining community. A halving makes their work less profitable, and it could be that bitcoin would need to sit at the $10,000 mark for them to achieve a breakeven price. Inefficient miners are most at risk, and they may need to liquidate their rewards. This would flood the market with bitcoin, and that in turn could threaten the fortunes of more profitable miners due to a sudden growth in supply of the digital asset.

Billy Bambrough reported on 12th May in Forbes the view of Gavin Smith, chief executive of Hong Kong-based bitcoin and cryptocurrency exchange and hedge fund Panxora, who said, “The recent much-hyped halving, while largely psychological in impact, could create a catalyst drawing new players into the market and contributing to the rise in the value of bitcoin.” That sounds promising, and he added to that, saying bitcoin is at “the start of a multi-year bull phase” though there could be “a bumpy road ahead.”

A hedge against inflation?

There is other interesting activity to factor in, such as more investors using bitcoin as an inflation hedge to protect their assets against currency devaluation. This has been fuelled by the US Federal Reserve pumping trillions into the economy to alleviate the effects of the lockdown. It isn’t the only government to have taken this step, and there is concern that these massive injections may lead to over inflation, as well as out-of-control debt.

Jean-Marie Mognetti, chief executive of digital asset manager CoinShares, commented: “In a world where investors continue to seek protection for their portfolios against the world’s central banks’ behavior, bitcoin, a digital currency whose supply is programmatically defined to reduce until it reaches its maximum supply, would seem to be the perfect hedge for any institutional investor portfolio.”

There is a belief that if bitcoin becomes a safe-haven asset and a hedge against inflation, then its price will head for the Moon over the next couple of years, and we will see that December 2017 price of $20,000. Perhaps $100,000 isn’t so pie in the sky after all.

Who Will Kill Bitcoin?

We are apparently living in an unprecedented time, although of course we aren’t; there have been plagues before this one. The only difference is that we are living through this is in an age of technology.

We know who the global tech giants are:They are Google, Facebook and Apple, and they all need to build their revenue. Amazon is excluded from the list, because it has already seen a massive growth in traffic and purchases, as consumers confined to their homes need to have stuff delivered.

 

One way in which the three tech giants could pursue rapid growth is by entering the financial services sector, something they have dipped their toes into, but have never embraced wholeheartedly. However, they face a challenge, and as Billy Bambrough, one of the expert cryptocurrency analysts I follow writes, while Google et al have been waiting around, “bitcoin has gained ground.”

What are Google and Facebook’s weak points?

 

As Bambrough says, these two companies have relied on ad revenue, but he believes that this is going to be squeezed hard by regulators in the post-virus world. In an earlier article, he wrote that the world will likely be looking for alternatives, and quotes the CEO of the blockchain-based privacy browser Brave, who believes Google “is going to be taken apart over coming years.”

Apple loses its grip

 

Apple has seen sales of its big money maker, the iPhone, decline. The reason being that less expensive phones have improved in quality, and improvements to the iPhone have not proved to be enough to really enthuse the consumer. Add to this the economic effects of the coming global recession and it is easy to see that those who might once have splashed out nearly $1000 on a new iPhne, may opt, indeed will have to opt, for cheaper models that effectively do the same job.

Google is apparently looking into launching a smart debit card, and Apple has already debuted a credit card, while Facebook is still moving ahead with its Libra stablecoin project that caused such a stir last year. It hoped to displace bitcoin as a leading cryptocurrency, but has clearly been foiled in its efforts.

 

Bitcoin offers stability

Meanwhile bitcoin, which has no tech company, government or central bank behind it lives on. And as Bambrough points out, it doesn’t even have an advertising budget, never mind a CEO. As he says, “Bitcoin, maintained by an evolving and decentralized network and beholden only to the mathematical principles that underpin it, is stability without authority.”

 

Google et al by contrast are deeply centralised, and so will any financial products they unleash on the market. They will never get away from that, whereas bitcoin continues to represent the antithesis of Silicon Valley capitalism. That’s why the big tech companies main option now is to kill it! But who will do it?