The globally influential financial giant Deutchse Bank announced on Twitter “The COVID-19 pandemic is accelerating the rise of central bank digital currencies as many governments see the handling of cash as a potential risk factor. This will likely add to calls to move towards digital cash, according to our Deutsche Bank research colleague Marion Laboure.” This sentiment echoes the statements from other financial institutions that see a reshaping of personal finance after the pandemic, with a new and enhanced role for cryptocurrencies such as Bitcoin.
Investors flocked to Bitcoin during the March stock market downturn and continued buying even as the cryptocurrency’s price dipped. Data from Cointelegraph noted as much as $44 billion in total on-chain activity during the week of March 15th. And, as of May 27th, BTC’s price rose to around $9,100, up substantially from the $4,994 low point on March 16th.
The pandemic created a variety of new conditions that are impacting traditional monetary markets as well as cryptocurrencies.
The Move from Cash
In Germany, a country with a strong national preference for the use of cash compared to electronic-based payments, the COVID-19 pandemic shifted the payments landscape. At many merchants, cash became either banned or discouraged due to fear about germs. The trend in Germany follows other European countries such as the United Kingdom, where a survey indicated 75% of people were decreasing their cash usage due to the pandemic.
Coins and cash functioning as virus and bacteria vectors is well known, with studies over the years pointing to an increased risk from handling communal objects such as cash money with germ transmission, especially from banknotes from medical or food establishment settings. And when cash is handed from a teller to a customer, the transaction is also breaks the six-foot recommended distancing barrier, unless there is a drawer or other mechanism in place to avoid such interaction. The length of the pandemic will largely determine the public’s attitudes towards cash as a potential disease vector that’s avoidable through a transition to contact-less payments.
Serving the Underbanked
A consistent benefit of cash is it provides a means of currency for “underbanked” individuals. These are people with limited access to traditional banking, who might be paid in cash, and not have other financial instruments such as debit or credit cards. COVID-19 and an overall push towards contact-less electronic payments will put more pressure on these individuals that rely on cash for their daily lives.
But Bitcoin functions as a viable alternative for cash for underbanked consumers. It is decentralized, and sale or purchase of Bitcoin does not require a traditional bank account. People in underbanked situations can leverage Bitcoin ATM machines to purchase Bitcoin and other cryptocurrencies with cash in a matter of seconds. For example, companies like Bitcoin Depot operate hundreds of Bitcoin ATM machines that serve a wide variety of demographic areas. Consumers with access to Bitcoin can then utilize their holdings as a longer-term savings vehicle, but also have the flexibility of immediately turning their cryptocurrency holdings into fiat currency. Owning cryptocurrency also provides individuals with access to micro-lending opportunities (both receiving loans and funding them), which can expand their ability to run a business or earn returns with their funds.
Knowing the Half of It
The surge in Bitcoin’s usage and fears about using physical cash are also timed with a momentous occasion for the cryptocurrency—the halving. Every four years, Bitcoin’s mining block award shifted from 12.5 to 6.25 BTC. This process began in 2009, when miners earned 50 coins every 10 minutes, and now it is at 12.5, and will continue until there is a total of 21 million coins available in 2140. These moves make it more costly for miners to acquire Bitcoin, as the mining process is time consuming and requires a significant amount of computing power.
Most experts see a gradual boost in Bitcoin’s price in the coming months as more buyers see it reacting in similar ways as it did after the two previous halving events, which brought significant price gains. This was due to multiple factors, but primarily because of the immediate cut in Bitcoin supply caused by halving events.
Bitcoin’s future after the pandemic is uncertain, but points to a surge in usage and acceptance, especially with the rise of availability and ease of use with Bitcoin ATMs popping up around the country from companies such as Bitcoin Depot. There’s a confluence of factors in play, including a movement away from physical cash due to germ worries, investors looking for a safe haven for their money, and the expanded availability of Bitcoin through ATMs and other purchase avenues. All of these are coming together to create an environment for Bitcoin’s growth and acceptance throughout 2020 and into the next year.
Disclaimer: This content does not necessarily represent the views of IWB.