Columnists

Is the world embracing cryptocurrency?

bitcoin
bitangendemo-ima

Summary

  • Previously seen as a threat to Fiat Money currency by various governments and institutions, it is worth noting that in the past two weeks the value of some of the key cryptocurrencies has risen by 500 percent.
  • One of the key explanations being given to this is that developed countries are now printing money to finance Covid-19 response.
  • And as such, cryptocurrencies are becoming a safe haven for many investors.

Previously seen as a threat to Fiat Money currency by various governments and institutions, it is worth noting that in the past two weeks the value of some of the key cryptocurrencies has risen by 500 percent.

One of the key explanations being given to this is that developed countries are now printing money to finance Covid-19 response. And as such, cryptocurrencies are becoming a safe haven for many investors.

As early as April 2020, analysts had started to predict that the pandemic and wobbly financial markets were forcing investors to seriously consider cryptocurrencies in post-pandemic crisis. They argued that decreased demand for goods may result in long-term depression of profits, thus affecting the stock markets negatively.

The US in particular has now turned to what is being referred to as “quantitative easing” aka printing money to fight the crisis.

So far more than $5 trillion has been printed and analysts estimate that by the time they are through with the crisis, as much as $10 trillion will have been printed. In theory printing money without real output always causes inflation.

There is also an increasing demand for cryptocurrencies such as bitcoin and the acceptance by major payment platforms to use the currency as a mode of payment. This has increased the appreciation of cryptocurrencies by analysts from the Wall Street. Institutional investors have also added the cryptocurrencies to their investment portfolios.

In October PayPal, one of the major payment platforms announced that it would support bitcoin, ethereum, bitcoin cash, and litecoin in buying and selling these cryptocurrencies for transfer of funds for the US market. Starting this month, they have extended their support to Venmo (its money-sending subsidiary) to international markets.

Although there is no evidence that Covid-19 related fiscal and monetary interventions could stroke inflation, investors fear that the crisis will eventually lead to spiralling of prices. But if history of pandemics is anything to go by, then 2021 could be another period of escalating prices as a result of shortages of goods and labour.

As investors scamper around looking for the best investment opportunity in the event the economies burst under the weight of escalating economic and social cost, we also need to look back in history to see what happened after the 1918 Spanish Influenza.

There is a likelihood that history may repeat itself. And it is the best way to explain the increased demand for cryptocurrencies. Some may argue that we are wiser now than in 1918, but in my view, there is a mirror image of 1918 that is re-emerging.

Historians could remind us that the 1918 pandemic was followed by a world war and two recessions that further deepened the crisis.

British economist John Maynard Keynes attributed the subsequent recovery to technology that was driven by electricity and mass production that greatly improved productivity. It also put many countries on the pedestal of economic transformation.

In my view, the emerging technologies such as the 5G, artificial intelligence, blockchain, 3D printing and Internet of Things that characterise the fourth industrial revolution could fast track our economic recovery just as electricity did during the second industrial revolution. Already high-speed broadband has enabled universal education.

It is no secret that big technology companies, from the US to China and Kenya, are now controlling the stock markets. And this is only a drop in the ocean as we start the fourth industrial revolution. The transformative effect of these emerging technologies is yet to be felt.

We therefore, must come to the realisation that the responses to the crisis are in our hands. To create our destiny we must be ready to exploit the opportunity and transform our fragile economies by ensuring universal access to high-speed broadband, create an enabling environment for technology to thrive and develop the abundant human resources.