At the time of writing, Bitcoin was approaching a new high of $ 20,000 per bitcoin. What has changed since the last time this maximum was reached?
The Covid19 situation has changed the way people do many things. Technology has been pushed to the forefront of everyday life. Things that used to be done physically are now being pushed into the virtual world – schooling, eating in restaurants, entertainment, work and buying many goods and services. A natural fit into this type of agenda is the use of cryptocurrencies. Why? They are an extension of the technologically driven world. They can also be used to compete with the existing financial system at potentially lower costs.
The last time bitcoin reached its record, many institutions demonized cryptocurrencies as payment methods used by criminals for terrorism, money laundering and the illegal sale of drugs. At the moment, Mastercard and Visa associate cryptocurrencies with their credit cards, and Paypal now accepts Bitcoin to be used on its platform. Many governments are talking about issuing cryptocurrency versions of their traditional currencies. There has also been pressure from Facebook in partnership with major banks and other institutions to issue a cryptocurrency called Libra, which has not gone far, but the intention is there. Cryptocurrencies are no longer for criminals unless the above institutions commit crimes.
The key to any technology is widespread or mass adoption. The more people use something, the greater the demand for its use and it will become more important. With widespread adoption, the systems that work with the product are also beginning to change. See Apple iPod, Microsoft Windows, ISPs, and electric cars as examples. With the new demand will come new industries and products that were not useful without the adoption of the original product.
Vulnerability of traditional investments
Due to the Covid scenario and the developing depression, investing in stocks and bonds becomes quite expensive and carries higher risk as the underlying economy is separated from the performance of these markets. High levels of debt make real estate investments more risky than in the past, as well as volatility in rental income and people’s ability to pay mortgages. Cash is a safe haven, but growing debt and the prospect of inflation mean that cash also has a risk. The concept of diversification means that these investments need to be retained to some extent, but there is now a longing for assets that complement these products. These new assets are cryptocurrencies. This product allows for diversification from excessive debt, currency devaluation and high inflation.