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As the Money Continues to Flow in Pandemic Responses, Crypto’s Time is Nigh

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As shutdowns around the world aimed at mitigating the spread of the novel coronavirus continues, the global economic picture is becoming increasingly bleak. Here is how the money continues to flow in this COVID-19 pandemic is changing the Cryptocurrency market.

In America, unemployment numbers have reached their highest level since the Great Depression of the 1930s, with one out of every six people out of work due to the virus.

In Europe, the situation is no better, with analysts predicting an unprecedented recession and subsequent economic repercussions far worse than the worst-case scenarios of recent projections.

The problem with the virus — and money — is that there is no clear way out.

Governments cannot just open up their economies and put their entire populations at risk (but they are, and it is). Even if economies do get reopened faster, there will be a number of factors — not least among them consumer wariness.

People are scared and we will see companies operating in far-reduced capacities. But, on the other hand, the longer things are put on hold, the more damage gets done to the economy.

Governments stuck between a rock and a hard place.

Governments have by and large turned to stimulus packages that they hope will hold citizens and businesses over until the virus poses less of a threat.

When will that be the case? At this point, nobody knows. While some countries in Europe have started trying to slowly put things back in motion. In America, the virus is still spreading at an alarming rate and the government’s testing capabilities are far below what they need to be.

With the economy in what Paul Krugman termed a “coronacoma,� and people increasingly finding themselves out of work, the American government has passed trillion-dollar emergency bills into law. The bill is to send out economic relief funds to citizens and companies.

To fund all of this expenditure, the Fed has been injecting new money into the economy at the fastest rate in over 200 years. Meanwhile, as the Fed goes on pumping money in, the US national debt is ballooning towards $30 trillion.

U.S spending

While public spending in the past few decades in the US hasn’t been frugal, the recent increases are unprecedented. And the longer everyday life is shut down by the pandemic, the further into unchartered territory we are set to drift.

As seen in the 2008 recession, the global economy consists of a myriad of interwoven factors that can topple like dominoes should things start going awry. Well, things are going awry now, and, as evidenced by Los Angeles mayor Eric Garcetti’s declaration that LA will not fully reopen until a cure to the virus is found.

The prospects of putting things back together again are not very promising right now.

While the government’s response has been keeping the economy in artificial motion by printing and injecting money into it — there is concern that the center may no longer be able to hold.

Temporary relief afforded by the emergency measure may be welcome in the short term. The danger lies in the consequences that this may cause further down the line.

What about Bitcoin?

In an illuminating coincidence, while a simulacrum economy powered by the new minting of fiat currencies is being deployed around the globe. Bitcoin just held its third halving, an event that highlights the cryptocurrency’s inherent scarcity.

Bitcoin and the other major cryptocurrencies were not immune to the market crash caused by the coronavirus.

Back in March, the initial outbreak, compounded by plummeting oil sales, caused global economic shockwaves that penetrated into the crypto market and sent Bitcoin reeling.

The original cryptocurrency lost over 50% of its value in a day and many saw it as proof that the asset was too intricately tied to traditional finance to be considered a safe-haven.

Economically speaking, the modern world has never really faced an event on the same scale as this pandemic.

The Covid-19 outbreak has forced all sectors to self-examine and reconfigure.

Nowhere is this more true than in the oil industry, where all the strategy at play in the OPEC standoff was shortly turned on its head by the ramifications of the pandemic.

After the Saudi Arabian and Russian sides failed to come to an agreement at their summit in Vienna, they both left the table feeling like they could gain an advantage over the other in a standoff situation.

Both countries expected a prolonged plunge in oil prices, but this was something they could afford it, in the long run, they could gain an advantage from it. In order to balance its national budget, Russia needs oil to be at least forty to forty-five dollars a barrel.

In Saudi Arabia, that price per barrel figure is around eighty dollars. So when the price of oil initially crashed and the ruble went along with it, the Russian side was confident that it could withstand the damage long enough to gain an edge over their rivals.

The coronavirus pandemic made all the strategizing meaningless, and travel restrictions across the globe sent oil plunging to record lows.

The two sides came back to the table and agreed to a new deal, involving the US as well, and the price rose as a result, but nowhere near where it was previously. The danger here also lies in the fact that no amount of propping the industry up may be able to offset travel grounding to a halt.

The damage being done could turn out to be irreversible, and, given how significant oil is to the overall economic picture, the consequences could be quite grim.

It is with that backdrop that more and more attention is being paid to cryptocurrency. Bitcoin made it through its March madness and rebounded better than it was before.

The halving that occurred on May 11 saw transaction fees rise to all-time highs, a sign that more and more people are entering the market.

The halving — and more people entering the market is to be expected to a certain extent. While there are great forces at work trying to help the economy get through this dark period, the uncertainty that people are facing is unprecedented.

Logically, looking at the way that money is being printed and used to offset the carnage occurring, many are realizing that it is losing its meaning. There is nothing tangible backing the dollar — bleak, with all the turmoil in the world.

Thus — people are turning to cryptocurrency both as an investment and as an active trading market.

The limited supply of Bitcoin, and the way it operates independent of—recently faltering—government hands, has given it appeal as something that may not only make it through this crisis intact but actually emerge better off. And it’s not just Bitcoin.

The cryptocurrency industry has grown into something altogether different in its eleven years of existence. What started with a solitary digital asset has turned into a flourishing ecosystem.

The appearance of Litecoin, the second cryptocurrency, in October 2011 started a revolution in the crypto world. Then the launch of Ethereum, the altcoin giant, kicked things into another gear.

Nowadays, according to Coinmarketcap, which aggregates crypto assets and exchange data, there are over 800 active markets on HitBTC, which leads all exchanges in terms of trading pairs. Experts are predicting that there may be over 1000 cryptocurrencies gathered under one roof by 2021.

While a significant number of those currencies can hardly be considered promising, the number is illustrative of the strides that have been taken in cryptocurrency development.

In just over a decade, this space, which was roundly dismissed by traditional finance when it appeared, has turned into the fertile ground.

We are witnessing the technological and financial ideas of the future emerge. And, while the current circumstances have been anything but conducive to growth in traditional sectors, there is no reason for decentralized finance to contract.

The number of cryptocurrency projects continues to grow.

As more people enter the space the projects are getting more formidable. Just recently Reddit rolled out its Ethereum-based Community Points project, tailored to subreddits with over 2 million users.

The early success of the program — over 10,000 wallets have been registered already — bodes well for the continued growth of the industry.

Many have encouraged people to use the downtime afforded them by the current pandemic for self-reflection and reassessment. Should this habit be constrained to our personal habits and lifestyle choices? I think not.

Disruption events of this stature are times for innovation, times for taking new looks at old problems and developing new ideas.

While governments around the world are performing acrobatics and pulling fiscal bandaids out of their banking hats, now’s the time to see if we can’t be doing this all a little bit better.

What’s the post-virus news?

While the future is anything but certain, the decisions that are made now could have long-lasting effects. The post-virus world is certain to be a very different one, as we will have to redefine social and economic norms.

While there are not many things to be optimistic about now, cryptocurrency and blockchain technology may be the exception.

The post As the Money Continues to Flow in Pandemic Responses, Crypto’s Time is Nigh appeared first on ReadWrite.

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Bitcoin Emerges as New Standard in Post-COVID Economy?

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Bitcoin has always had the potential to become a world standard for money. Even if the blockchain that powers Bitcoin lacks the bandwidth to handle the required transaction volume, and even if the world wasn’t ready 11 years ago for non-governmental e-money to go mainstream, the potential was always there.

Indeed, Bitcoin enthusiasts and developers have long insisted the day will come when Bitcoin will stand alongside gold. Back in 2018, Jack Dorsey, CEO of Twitter and Square, emphasized that Bitcoin would become the world’s single currency.

What the visionary, Milton Friedman, predicted about Bitcoin in 1999.

Even before Bitcoin became a reality, visionaries like Milton Friedman were predicting the rise of an internet-version of cash, as long ago as 1999. “The internet is going to be one of the major forces for reducing the role of government,� he said at the time. “The one thing that’s missing but will soon be developed is a reliable e-cash, a method where you can transfer funds on the internet without A knowing B or B knowing A.�

The statements of Milton Friedman are precisely why finance commentators like Vice News producer and The Wisdom of Crowds author James Surowiecki have been so skeptical about Bitcoin going mainstream. “Our economies and financial systems are built around fiat money, and they rely on the central bank’s control of the currency (and the government’s ability to issue debt in that currency) to help manage the business cycle, fight unemployment, and deal with financial crises,� Surowiecki wrote in spring 2018 when Bitcoin hype was peaking.

Can Bitcoin be the dominant economic currency?

“An economy in which Bitcoin was the dominant currency would be a more volatile and harsher economy, in which the government would have limited tools to fight recessions and where financial panics, once started,� he continued, “would be hard to stop.�

Yet, two years later, the signs are positive that the significant disruption of the novel coronavirus could do what nothing else has done so far: give Bitcoin the extra push to become accepted as a reserve currency.

The macroeconomic moment we’re currently in represents a serious opportunity for Bitcoin use cases. Let’s take a look at a few key reasons why.

Corona is leveling the playing field

Set against long-lived currencies like the dollar and the pound sterling, Bitcoin seems new and untested. But venerable fiat currencies are crumbling.

Currency collapse, of course, is nothing new – this all has happened before. As recently as 2017, when the Bolivar collapsed, many Venezuelans went on to adopt cryptocurrency for their transactions. Before that, the Zimbabwean dollar and Argentine peso saw hyperinflation that prevented them from serving as valid currencies. The Icelandic krona suffered a similar fate after that country’s financial collapse in 2008.

In hindsight, 1971, when the gold standard was finally abandoned, was the beginning of the end for fiat currencies. For decades, central banks have reacted to economic threats by printing money and lowering interest rates, slowly creating a massive debt bubble that eventually caused the 2008-9 crisis.

Despite warnings, their strategy hasn’t changed, leaving fiat currencies over-inflated and ready to pop.

The coronavirus crisis brought a substantial economic shock that these currencies can’t withstand.

We are seeing sudden slashes to both supply and demand and cuts to international trade that has brought the global economy almost to a standstill. In response, the US Federal Reserve, the Bank of England, and the European Central Bank (ECB) all increased their quantitative easing plans and brought interest rates down even further to 0% (or below, in the case of ECB and Japan).

In the absence of the gold standard, it’s unclear what fiat currencies have reduced value against.

We can even argue that they reduced value against Bitcoin since it reflects the true market value of currency at any given time. Some hardcore proponents, including the author of Rich Dad Poor Dad, claim that it’s the only true hard money.

While that insight into the issue is hardly accepted universally, Bitcoin is increasingly seen as “harder� than fiat currencies which are manipulated by central banks.

Indeed, if Bitcoin’s resistance to central bankers’ manipulations is what once made it seem impractical, today, that stand seems like much more of a feature than a bug.

With fiat currencies in disarray and central banks on the back foot, we’re likely to see either a return to old financial ideas perceived as safe and stable, such as the gold standard, or the acceptance of radically new ones like Bitcoin which no longer appear unattractive.

When the internet rules, e-cash is king

Up till now, the decentralized nature of Bitcoin was one of its disadvantages. It was seen as chaotic, disorganized, and unreliable with no one officially “in charge.â€� The current period shows the manipulation of interest rates and quantitative easing measures — together with the effects of the coronavirus. All of these produce a prolonged period of artificial deflation, or worse, stagflation, decentralization could become an asset rather than a drawback.

Friedman, whom I quoted above, presciently linked the rise of e-cash with the central role of the internet in governing our lives. Once the internet rules, his argument goes, we will trust the currency which it manages.

It’s similar to the slow rise of email, which existed as a medium for communication since 1971 but wasn’t widely adopted until the mid-1990s. Suddenly, trust rapidly increased until it became ubiquitous.

Bitcoin occupies a similar space. It’s an internet-based tool that’s been awaiting its time. You could say that 2009-2020 were Bitcoin’s shadow years, just as 1970-1990 was that era for email. And we’re already seeing the tide start to turn.

The critical role that Bitcoin plays.

We can see this from the increasingly important role that Bitcoin plays, not just as a currency, but as a trustworthy agent in online interactions. The concept has been building and maturing slowly. And, UX has improved with time.

As digital currency spreads and becomes more stable, it’s turned into the foundation for dapps. RSK, for example, uses Bitcoin as the foundation for a smart contract platform, easing people’s ability to use it for transactions. RSK is the first open-source smart contract solution to have been built on Bitcoin’s network, and the platform has also rolled out powerful interoperability capabilities.

Bitcoin’s benefits to Ethereum.

“We believe being able to offer Bitcoin’s benefits to Ethereum users and to connect these respective developer communities is a crucial step for the blockchain ecosystem as a whole,� RSK Strategist Adrian Eidelman told the press in February.

Another example is the recent acquisition of the popular Taringa! Social network by IOV Labs, the company behind RSK. There are ambitious plans on the table to introduce Bitcoin transaction capabilities, to decentralize social media data storage, and to reduce the monopoly of global internet corporations such as Facebook.

The decentralizing move has a lot in common with Dorsey’s recent statements about his goal to decentralize Twitter’s tech infrastructure over the years ahead, through a project codenamed Bluesky.

At the same time, Atomic Loans is investing in building a decentralized finance marketplace for Bitcoin DeFi-backed loans. Such advances are fast bringing Bitcoin to be a versatile, widely-accepted currency.

Success breeds success

Bitcoin is standing on the threshold of widespread adoption as a reserve currency, and its diversifying use cases attest to this.

The currency is increasingly used for P2P lending and has improved cross-border trade as it removed the need to go through exchange middlemen. Dorsey is among the recent investors in Lightning Labs’s project to build a new protocol layer to speed up and lower the cost of Bitcoin transactions, while his Square Cash App is rolling out payments in Bitcoin, and Money on Chain is building a DeFi platform to serve as the foundations of a DeFi ecosystem for direct financial interactions.

We’re looking the future hard in the eye.

These and other important steps are establishing Bitcoin as a viable, stable means for payment. We anticipate that it will soon be adopted by central banks as a reserve hard currency, alongside their existing fiat currencies and gold stocks. In the short term, governments may even create their own Bitcoin to maintain control over the currency, but Bitcoin relies on decentralization, and in the long term, it will continue to evade governmental control.

A new bitcoin utopia could be on the way.

We still haven’t reached Bitcoin nirvana, but the signs are promising for long-term Bitcoin believers. Fiat currencies have long been losing their appeal, after decades of overprinting money and dragging down interest rates. As they crumble, Bitcoin’s star rises.

The corona-triggered recession is merely the pin that popped the fiat currency bubble.

Simultaneously, the more projects and platforms built on the back of Bitcoin DeFi, the more trust in and familiarity with the currency increases, setting it up for adoption as a reserve currency in 2021 and beyond.

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