On January 24th 1848, James W Marshall found gold in California. What happened in the following years is, of course, known as the Gold Rush. For those of you interested in such things, you may have noticed an increased focus on the financial markets since the beginning of the Covid-19 pandemic.
Following a crash that started on March 9th 2020, followed by two more record-setting point drops on March 12th and 16th, there was a strong rebound, notably for companies that were going to continue to do well despite the economic and humanitarian crisis the world has been going through. Companies like Tesla, Etsy and Amazon saw their stock price rise sharply during 2020, often drawing criticism as the billionaire CEO’s saw their new worth increase sharply, with billionaires around the world getting $1.9 Trillion richer since the start of 2020. This has drawn ire from many different areas, especially considering it has happened when many people are struggling to make ends meet.
The gains that occurred in the stock market since the crash weren’t isolated to just the traditional markets but saw what could be considered as the second coming of Bitcoin and other cryptocurrencies. Not since the mad dash to buy Bitcoin in December 2017 happened has there been a year where interest in crypto has been so focused, popular and in the zeitgeist of the moment. Both Bitcoin and its closest rival, Ethereum, have set new all-time high prices during the pandemic, with the current market cap at the time of writing being around $660 billion. For reference, the peak in December 2017 was $237 billion.
While big financial institutions once were highly cautious about cryptocurrencies, even writing them off as a flash in the pan fad at best, those stances do appear to be changing. Prestigious institutions like JP Morgan have publicly backed cryptocurrencies. With an ever-increasing amount of investment institutions holding cryptocurrencies in their portfolios, the future does appear to be looking brighter by the day. Bitcoin got arguably its most significant public vote of confidence when Tesla invested $1.5 billion in the cryptocurrency. With this increased attention on crypto, as well as the soaring consumer-focused drive by global exchanges to enable FIAT deposits by debit and credit cards, at this moment it’s easy to explain why we’re witnessing all-time high prices on a constant upward trajectory.
One thing that is worth bearing in mind is how quickly things can change in the world of crypto. What would maybe happen in a year in the traditional markets can often happen in a month in crypto, from huge spikes in the market to terrifying plummets. At the time of writing, Bitcoin is at an all-time high, but this can change very quickly.
What does appear to be the missing piece of the crypto puzzle is real-world use cases. Along with Tesla’s investment in Bitcoin, they also announced they would be looking to accept payments for their cars using Bitcoin. One of the main questions always levelled by people hearing about crypto for the first time is “what can I use it for?”. Currently, the fees associated with some of the most popular Cryptocurrencies seem to inhibit their use for anything outside of being an investment vehicle, possibly because when the original Bitcoin whitepaper was released, it wasn’t created with the mass holding of the coins in mind. The costs become even more prohibitive when compared to the already high card fees. However, some of the barriers in place with cards do not apply with cryptocurrencies, whereas card issuers decide for what you can or cannot use your own money. For instance, many issuers are currently blocking transactions with crypto exchanges.
A month in the crypto world is akin to a year in the real world. It’ll be really interesting to see what the crypto space looks like this time next year. Will the bubble have burst? Will the predictions of a six-figure Bitcoin materialise or will it showcase a slow decline from the all-time highs like in 2018? One thing is for certain: the general crypto-buying users are much more educated in the matters than in 2017, and the accessibility of the markets have never been better, so there’s a chance we’re not going to see a repeat of the past. We’re still in the midst of a global pandemic, the economic impact of which will be felt for years to come, with unforeseen effects on many aspects of our lives. Whether or not crypto will be seen as a golden opportunity or something too risky to dabble in at these uncertain times could impact the sector’s landscape for the next few years.