Cryptocurrencies have experienced the worst sell-off in years as stock markets plummet amid a global coronavirus pandemic. While it comes as no surprise media attention has concentrated on these price declines, a more important story appears to be playing out behind the scenes.
There’s growing evidence of a rise in crypto adoption despite recent price drops and what has been a disappointing failure of cryptocurrencies to act as safe-haven assets. This paradox has our team here at ZenGo asking some serious questions.
What factors could be driving the spike in adoption at a time when crypto markets appear so precarious? And, perhaps even more intriguing, could the growing economic fallout from the coronavirus pandemic be a catalyst for mass adoption?
How coronavirus is impacting crypto adoption
Here’s what we know so far. Over the last few months, crypto wallet sign-ups, trading volumes, and the use of cryptocurrencies to buy goods and services have skyrocketed.
We’ve experienced this first hand at ZenGo, where users of our app keyless crypto wallet have shot up in recent weeks. We’ve had record numbers of people buying crypto and using it for remittances and many other purposes. But it’s not only crypto wallets like ZenGo experiencing a spike in new users and transaction activity.
Coinbase has registered yearly record-breaking volumes amid the recent market sell-off in crypto. On March 12th, volumes on the Coinbase exchange increased by 280%, surpassing $1.1 billion. The next day, volume exceeded $1.5 billion, a record high for 2020.
Crypto payment processors are experiencing unprecedented growth as well, and crypto payment apps are reporting a significant increase in activity as users stock up on first aid and other supplies on different websites. Crypto lending networks have also seen a rise in depositors, collateral, and surging market demand for interest income from retail users in recent months. And these are just a few examples of what we’re seeing out there.
What driving factors could be behind this increased activity? In the past, price declines, and severe market volatility like we’re currently experiencing would be more than enough to scare most people away. The failure of cryptocurrencies to act as safe-haven assets would also presumably be another negative factor for adoption. While panic sellers and speculators will undoubtedly be the reason behind some of the increased activities on exchanges and rise in wallet signups, there’s likely another dimension to what we’re seeing.
This is not your average crisis
Understanding the nature of this crisis may shed some light on why adoption appears to be rising. What began as a public health emergency has quickly escalated into an unprecedented economic crisis.
Much like dominoes, economies around the world are getting decimated as they gradually shut down in an attempt to stop the coronavirus from spreading and overrunning health systems. Companies are going bust, people are losing their jobs, and financial markets are crashing faster than ever before.
In less than a month, major indices have fallen almost 30%. Stocks in some sectors such as oil are down by 80%. Government and central bank responses to curtail the crisis have so far had limited success and are even compounding problems instead of making them better.
Banks are clearly worried about people withdrawing too much cash.
Forget the mattress! Keeping large sums of cash at home is risky. The best place to protect your money is in an FDIC-insured bank where it’s safe and sound. Learn how the FDIC safeguards your #money at https://t.co/O2cb1bTUJs pic.twitter.com/R8pFVxBPrM
— FDIC Gov (@FDICgov) March 24, 2020
With a rapidly deteriorating financial situation and governments almost out of options, the underlying fragility in the global economy and the negative impacts of central bank monetary policies are getting exposed. This may be inadvertently helping to promote the contrasting qualities of crypto-based systems.
Money printer go Brrrrrrr
Quantitative easing, a euphemism for money printing, is now in overdrive. Many economists are suggesting we have officially entered into a new era of economic thinking called Modern Monetary Theory (MMT), and there may be no way back. MMT is controversial and requires a separate post to explain, however, it basically suggests that governments don’t need to worry about debt anymore because they can just endlessly print their own money.
The consequences of endless money printing have played out before in places like Venezuela and Zimbabwe. They are predictable and catastrophic in nature. Currencies such as the US dollar and others can only but lose value in the longer term as value stems from scarcity. Hyperinflation is all but inevitable as well.
Our money is officially broken. This is pure insanity. pic.twitter.com/FDPNFcxmKV
— Marty Bent (@MartyBent) March 23, 2020
Cryptocurrencies such as Bitcoin are designed precisely to countermeasure these dangerous money printing policies. They are not controlled by any centralized authority like a central bank and have a limited hard cap and predictable daily output. They act as an inflation-proof store of value and cannot be endlessly created to generate prosperity at the expense of savers.
It’s thanks to these qualities that cryptocurrencies have gained a lot of popularity in high-inflation countries like Venezuela. But as quantitative easing reaches unprecedented levels in the US, EU, and Asia, more people may be looking to invest in and use cryptocurrencies as they seek out ways to fight inflation and protect their savings.
Capital controls are rolling out
Capital controls are often used in times of crisis, most recently in countries such as Greece, Cyprus, Argentina, Iceland, and Lebanon. They usually start informally by limiting the money customers can withdraw or transfer, but can become extremely severe if there is a run on the banks. In this current crisis, first-hand accounts of banks denying or requiring customers to seek permission to conduct withdrawals are becoming more widespread.
Already hearing plenty of stories of customers not being able to withdraw cash in branch. Even amounts as low as $1000 being told to come back in 48 hours or flat out refused.
— Alex Saunders ???? (@AlexSaundersAU) March 20, 2020
BREAKING: Egypt’s banks just limited withdrawals and deposits.
The central bank put the daily limit for individuals at 10,000 Egyptian pounds ($635) from their local bank and 5,000 pounds ($317) from any ATM.
This is why bitcoin was created.
— Vis (@Vis_in_numeris) March 30, 2020
Some banks have even started scaling down operations as more staff work from home, and jobs are cut. This has resulted in empty ATMs in some networks.
Capital controls and a lack of access to cash are likely exposing many people to a realization of the lack of control they have over their savings and pushing them to look for alternatives. Many may be looking to cryptocurrencies, which give individuals complete ownership and control over their assets and also enable payments to anywhere in the world without requiring the permission of a financial institution.
Negative interest rates have arrived
Many central banks have dropped interest rates to zero or even negative to stimulate spending and combat deflation. At zero percent, depositors’ are seeing their savings decrease in value due to inflation. Savers experiencing negative interest rates are finding themselves in an even worse situation. Instead of earning interest, they are getting penalized through the charging of fees as governments look for ways to incentivize spending in the economy.
bitcoin is the world’s most efficient savings technology
— Pierre Rochard (@pierre_rochard) July 16, 2019
In a reality where depositors are punished, and purchasing power is continuously diminished, more and more people will be open to alternative ways to store their assets and increase yield. Many cryptocurrencies have a limited supply and predictable daily output that cannot be manipulated or devalued by a central authority, so they are a logical choice for a growing number of people right now.
Is this crypto’s moment for mainstream adoption?
It’s challenging to know what will happen moving forward, but what we do know is that severe crises often lead to significant transformations because they deliver the shock needed for society to see things with more clarity.
Bitcoin was famously born out of the ashes of the 2008 financial crisis as an alternative to the fiat-based monetary system. A wider crypto community has since grown and flourished in many ways, but mainstream adoption has yet to take place. If we fast forward to today, the coronavirus pandemic may well be on the path to changing that.
The severe nature of the current economic crisis has made it almost impossible to ignore the fundamental flaws in the fiat monetary system and the adverse impacts it has on society. It has likely caused more people to be distrustful of how economies and financial markets are managed and led them to look for new systems to believe in amongst the chaos.
“Transformations always occur during moments of crisis”Paulo Coelho
The contrasting qualities of cryptocurrencies may now be viewed by growing numbers of people as a more legitimate and attractive alternative that can offer what the fiat-based system cannot. Things like more control over assets, faster and cheaper payments, and protection against inflationary forces.
Of course, we can’t be sure if the current spike in adoption will continue into the future and have no way of proving the driving factors behind it. However, this crisis will likely have a positive impact on crypto simply because of what it has exposed and the shift in many people’s mindset it will have set in motion.
It may also lead the crypto industry to focus on building new and better products and services and serve as a driving force for entrepreneurs to scale up efforts to make much-needed technology improvements and innovations.
So, it may well be crypto’s moment for broader adoption, but it’s now up to the crypto community not to let this crisis go to waste. It’s imperative to ensure the remaining roadblocks to mass adoption are eliminated.
Lessons from history teach us that deeply entrenched financial habits usually don’t change overnight unless something critical happens. Although we don’t quite know how this will all play out, the current economic crisis may well be setting a context of urgency for new crypto-based systems to begin their emergence on a broader scale.
But there’s still lots of work to be done.
Managing crypto assets is way too complicated and insecure for most people today. Mainstream adoption will be highly dependent on the ecosystem building better bridges and on-ramps into crypto that enable people to invest and manage cryptocurrencies with the utmost simplicity and peace of mind. At ZenGo, this has been our mission from the outset. Find out more about how we’re making this happen here.