Crypto, COVID, and Economic Uncertainty
The digital currency, Bitcoin, made its debut in 2009 and has grown exponentially ever since. As of mid-October, Bitcoin is valued at a little over $12,800 per coin.1 Cryptocurrency and blockchain technology has continued to gain popularity over the past decade, and investors are still turning to this alternative market in 2020. As we continue experiencing a year of financial uncertainty, here’s where the world stands when it comes to cryptocurrency.
Bitcoin and COVID-19
Between March 5 and March 12, Bitcoin declined over $3,600 in price, representing an approximate decline of 41% in just seven days, rivaling the massive correction the cryptocurrency experienced in 2017.1 Feeling some deja vu? As most investors remember, the stock market crash of 2020 also occurred around the same time, beginning on March 9.
Similar to traditional capital markets, Bitcoin likely plummeted in response to investor uncertainty surrounding the coronavirus, as well as the decline and disparities over the price of oil in the Middle East.2
However, it’s important to note that Bitcoin rebounded fairly quickly, reaching its pre-pandemic pricing by the beginning of May.1 Does this indicate that cryptocurrency may be a safer option for investors during times of financial turmoil? Of course, there is no certainty to an answer to these questions. Still, many investors find it an appealing alternative (or addition) to portfolios based in traditional markets, especially due to the magnitude of monetary and fiscal response.
Blockchain: What Is It?
Bitcoin's foundation is predicated on Blockchain technology, which theoretically is an incorruptible digital ledger of economic transactions. It is used to record financial transactions or virtually anything with value. It works as a digital ledger keeping a record of all transactions taking place across a peer-to-peer network in real-time.
How Does Blockchain Work?
Imagine the blockchain as a book of records with a countless number of pages. Each page in this book is referred to as a block that can be programmed to record virtually anything. The pages (blocks) are then created one after the other and chained together simultaneously, creating a chain of blocks referred to as the blockchain.
The various blockchain records are maintained on an extensive network of networks, meaning no single person or entity controls the records' history. Every time new information is accessed and updated (a transaction), the changes made are verified and recorded before being encrypted and sealed off completely, unable to be edited again.
Blockchain Use During COVID-19
Blockchain technology has been around for more than a decade, but some experts believe it could be making its way into more mainstream uses in light of the recent pandemic. From testing the virus to tracing vaccine distribution, blockchain technology may be the answer the pharmaceutical industry needs to address safeguarding records and sharing information across multiple channels - as described in a recent article by Coin Journal.3
Beyond the healthcare industry, government agencies and nonprofits may begin turning toward blockchain technology because of its ability to offer data transparently and securely. For instance, nonprofits may be able to use it to give donors peace of mind in knowing their funds are being directed where they should, and not to a middle man or other shady location. Central Banks have even been mulling the idea of creating their own purely digital currencies based on blockchain technology, and we may be close to this reality than many realize.
While experts have compared Bitcoin to digital gold due to its inherent scarce quality (only 21 million bitcoin will even be "minted"), some believe it to be fool's gold. Whether it is one or the other remains up for discussion, and the jury is still out, as they say. Therefore, it is critical to do your due diligence before making any investment, and as always, maintain a portfolio diversified across many different financial asset classes.
If you're interested in learning more about this market and whether or not it could be well-aligned with your greater financial goals, please do not hesitate to reach out!
Matt Faubion, CFP®
Founder - Wealth Manager
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.