Cryptocurrencies have been on a significant upward trend since March this year, with Bitcoin up 20% in just one week and Ethereum up a massive 75% in the last 2 weeks of July. The fundamentals of cryptocurrencies are improving as they get more support from traditional institutions. In the US, the Office of the Comptroller of Currency recently allowed banks to hold cryptocurrencies, and Switzerland’s financial regulator, FINMA, approved two Zurich-based banks to offer a range of cryptocurrency services, including trading and custody. Prior to these developments, banks avoided bitcoin and other cryptocurrencies due to regulatory concerns.
Ethereum’s support appears to have come from the arrival of ETH 2.0. in August, Ethereum developers are expected to launch the final testnet of ETH 2.0 called Medalla. ETH 2.0 would eventually eliminate miners from the network and reward users for participating in the network. The system would enable users to earn a yield on their Ether holdings in the long term.
While these events have supported cryptocurrency prices, we cannot ignore the devastating impact of Covid-19 on the global economy, and its potential to precipitate the devaluation of traditional currencies – not least the dollar.
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The dollar recently weakened to its lowest point in two years against the euro, and this has made markets jittery. True to form, gold gained momentum amidst market volatility caused by the pandemic and cryptocurrencies followed suit. This trend, may in part, underscore the theory that both gold and cryptocurrencies occupy a safe-haven space when there is economic uncertainty. While global markets bounced back after losing one-third of their value in the early stages of the pandemic, it is anticipated that the yields of even the most solid players will be affected, as the knock-on effect of the global shutdown of scores of businesses takes hold.
Some experts have suggested that bitcoin is the gold of the tech era, but is this a realistic view, and could they ever replace traditional currencies? While there is no doubt that cryptocurrencies are extremely volatile, their growing acceptance should augur well for their integration into the mainstream of viable asset classes. The markets seem to shrug off any negativity that gets thrown at crypto and they have prevailed in the face of extreme regulatory resistance. Analysts however are reluctant to peg their reputations on categorically stating that they will be fully integrated into the global economy, but recent cautious adoption by regulators, certainly makes them an asset class to watch.
The information contained in this blog post is for educational or informational use only, and is not intended as financial or investment advice. Seek a duly licensed professional for financial or investment advice.