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Banks Lagging, Bitcoin Gains Strength: Why Has Pandemic Become A Driver For Crypto?

Who would have thought that a global health problem would be the impetus for the popularization of cryptocurrency? What is the phenomenon of Bitcoin’s success at a time when central banks are drowning in difficulties and looking for a “lifeline”?

“Fake”, which grew into a threat to the banking system

Before the spread of COVID-19, Bitcoin was predominantly seen as an asset that is great for speculation and getting big money quickly. If you calculated your trading strategy correctly, predicted the Bitcoin price movement, and played up in time – voila, you can take your jackpot. This model has taken root in the minds of most of the market participants, so the loud statements about Bitcoin as a “digital gold”, “haven asset” were not taken seriously.

The pandemic has become a catalyst for transforming the understanding of the value of Bitcoin as an asset. With the growing threat of global inflation, the depreciation of the dollar, and not always the logical monetary policy of governments, the cryptocurrency has attracted the attention of not only large investors but also ordinary people. Bitcoin is now increasingly viewed from the perspective of protecting funds in times of financial turmoil.

DBS economist Taimur Baig commented on this trend:

Previously, people were very biased towards Bitcoin, so it was labeled as a ‘speculative asset’. But now the situation has changed dramatically: people saw the resilience of Bitcoin against the background of global financial turmoil and believed in cryptocurrency. They wanted to participate in this game. The idea of ​​placing 1% of your funds in Bitcoin is already seen as a profitable and forward-looking decision. The game is gaining momentum, and it is likely that in the post-coronavirus time, Bitcoin will retain its status as a hedge asset.

The leading players of the financial market have already joined the so-called “big game”. In particular, Grayscale, the largest institutional investing platform, reported that in the second quarter of 2020, the inflow of investments in Bitcoin exceeded $ 1 billion. Following Grayscale, another “shark” of the financial market, MicroStrategy, bought $ 400 million worth of Bitcoins. Thus, under the threat of inflation, institutional investors are no longer averse to storing their capital in cryptocurrency.

Central banks are balancing on the brink

COVID-19 has publicly exposed the problems of the banking sector that have been successfully masked for a long time. As a result, central bank stocks plummeted almost to the bottom, the policy of lending at zero and even minus interest rates has already returned like a boomerang in the form of a negative internal balance. Russ Mold, director of brokerage company AJ Bell, gave his assessment of what is happening:

The current policy of central banks can aggravate the situation and instead bring a lot of serious problems. This concerns the issue of large lending. We have already witnessed a recession in the banking system.