The coronavirus pandemic has already changed the world in a variety of ways. One change, in particular, is a rapid increase in the speed of the global digitalization. The use of fintech apps has grown by 72%, online purchases increased by billions, and the popularity of online video conferencing software skyrocketed. In a world like this, where every aspect of life is rapidly becoming digital, cryptocurrency has a chance as well. For all of its benefits, crypto has not been able to become equal to fiat money so far. However, now the situation might change. Development of options like Digital Yuan is a sure sign that the time of crypto might be upon us.
How the COVID-19 Pandemic Might Push Forward the Use of Cryptocurrency
The pandemic that all but brought the world to its knees is guaranteed to affect every aspect of life. This particular pandemic forced billions of people to stay locked in their homes. It enforced social isolation and distancing. It also made it impossible to complete a wide range of everyday tasks the “usual” hands-on way.
This situation definitely isn’t good. However, there is no denying the fact that it sped up the rate of development and adoption of tech solutions. As cryptocurrency definitely is one of those, the pandemic gave it an opportunity to come to the forefront.
Because of lockdowns and social distancing people are unable to make any payments the way they are used to. With cryptocurrency, none of the current social and healthcare issues would matter.
Moreover, the current situation again brought to the spotlight the fact that remittances cost about $25 billion a year to migrant workers. That’s how much money they lose in fees and currency exchange rates. The situation has improved somewhat today with money transfer companies offering much cheaper transfers. To see the difference between those rates and the one’s banks offer you only need to compare remittances prices. Migrants can now cut down the cost of transfer from 5-7% to less than 1%, all thanks to fintech solutions.
Cryptocurrency, however, can take this to the next level. Crypto transactions can be free and nearly instant. Should digital currency become widespread and gain the status equal to fiat money, it can make cross-border transfers irrelevant. This will save billions for people who need this most. This year is already set to show the sharpest decline in remittances in recent history. This means that millions of people, who already live well-below the poverty line, risk actual starvation. Every saved coin is life-changing for them.
Why Do People Need Cryptocurrency Today?
Another reason why cryptocurrency could be such a useful tool at the moment is that it is protected from government manipulation. Crypto, by its very nature, is decentralized. There is also a maximum limit on the number of coins that can be released and in circulation.
Therefore, cryptocurrency is safe from the kind of manipulation that national banks are now executing with fiat money. In response to the crisis, banks are printing money, releasing more cash into circulation. They are also manipulating currency values. That’s one of the reasons for extreme volatility on global foreign currency exchange markets.
Again, the poorest nations, the ones where remittances are a major contributor to the GDP, lose billions over it. FX rates volatility can easily bankrupt a weak economy, especially when combined with a global recession.
The poorest nations are already hit the hardest by the coronavirus crisis. The slow down of global trade removed their primary streams of income. The drop in remittances removed another. And the majority of these economies have nothing to support themselves on.
The adoption of crypto and digital payments can help those nations by allowing them to make more of the limited remittances that they do still receive. While seemingly insignificant on a per payment basis, the difference that free transfers can make for an economy is immense.
Moreover, as it’s protected from manipulations, the benefit will go directly to people. They, in turn, will increase the contributions into their economies. That’s the main reason why many experts advocate the adoption of crypto for poorer countries that rely on remittances.
Also, one should never forget that digital crypto payments can be made easily accessible. On the other hand, many residents in developing countries have no easy access to banking services.
Is Crypto a Good Hedging Tool in a Crisis?
The pandemic has given crypto a chance not only because it’s an excellent tool for remittances. It is also currently coming into its own as a hedging tool. With the high levels of volatility on foreign currency exchange and stock markets, hedging is essential. One of the main advantages of cryptocurrency is the fact that it can be a hedge against such issues.
The lack of certainty makes investors seek out something safe in the volatile world. However, as governments often manipulate not only currency values but also values of assets, there’s no safe haven in trading. Even the USD, which is the world’s reserve currency, isn’t a solid guarantee of protecting one’s fortune today.
Cryptocurrency, however, is a good hedging tool. Of course, its value is affected by the global economic situation. However, this value is not as sensitive to the matter as the value of any given fiat currency. This is obvious from the fact that despite experiencing a sharp crash at the beginning of the pandemic in March, bitcoin has already recovered to its pre-March levels by more than a half.
Will Crypto Become on Par with Fiat Currencies in the Post-Coronavirus World?
It’s true that cryptocurrency doesn’t have the status equal to fiat money yet. It can’t be used to pay one’s bills and only a few merchants accept it. However, times are clearly changing. With the rise in the number of digital payments, the deficiencies of the banking system and fiat money are highlighted. As a result, cryptocurrency is getting more attention as a possible solution to these issues. The need for a global change is clear and crypto might seize this opportunity.
Also published on Medium.