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Is Cash King? With countries printing money to boost their economies, Bitcoin trading and use cases are significantly increasing

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Is Cash King? With countries printing money to boost their economies, Bitcoin trading and use cases are significantly increasing

As the wave of financial recession sweeps across the globe, governments around the world are closely monitoring this massive relief period with uncertain end dates. On the 9th, the Federal Reserve announced a series of economic stimulus measures, including a $2.3 trillion aid package aimed at stabilizing the US economy hit by the coronavirus. Meanwhile, the Bank of England announced that it may issue billions of pounds to cope with the crisis.

These market rescue plans inevitably evoke memories of the 2008 financial crisis, triggering public concerns about global currency inflation. These worries seem to be driving demand for Bitcoin in some corners of the world.

Bitcoin Scarcity

The China Blockchain Application Center and Deng Di, a key member of the National Internet Finance Association of China (NIFA), pointed out:

The persistent quantitative easing policy will eventually affect the medium to long-term market, and Bitcoin was designed to address this situation, so I am optimistic about the future of Bitcoin. China is also expected to announce its own market rescue plan, and the central bank may use digital currency for the aid program, which will be a catalyst for the Bitcoin mining industry.

As central banks continue to print money, Bitcoin will always have a limited supply of only 21 million coins, making the upcoming halving of block rewards in May widely seen as a form of monetary tightening.

Against the backdrop of economic recession, countries are also evaluating their long-term reliance on their currency systems. For example, China is continuing to develop its national digital currency and infrastructure, while countries with high fiat currency volatility such as Argentina, Venezuela, Africa, and Russia are seeing an increase in retail cryptocurrency investors.

Gleb Kostarev, head of Binance's Russian operations, said:

Due to Russia's economic situation, interest in cryptocurrencies has greatly increased, especially with the ruble plummeting by about 20% in 2020. Additionally, authorities are setting up a new tax system on bank deposit income for next year, encouraging people to withdraw cash from banks.

In a broader economic downturn, Bitcoin is hardly the most important asset. However, recent trends in Bitcoin highlight the localized impact of global development. In places with historically high distrust of banks, many families now see Bitcoin as a more trusted asset than their local fiat currency.

Cryptocurrency and Speculators

At the start of the COVID-19 economic crisis, we saw significant volatility in Bitcoin, including Black Thursday on 3/12. However, following the massive sell-off, the subsequent trading frenzy has stimulated an overall increase in adoption rates and liquidity, leading to lucrative profits for exchanges. Various cryptocurrency-related institutions have observed the following phenomena:

Marius Reitz, General Manager of the African cryptocurrency exchange Luno:

Compared to the fourth quarter of 2019, new users in the first quarter of 2020 increased by 25%, including thousands of new users from Nigeria, South Africa, Zambia, and Uganda. Trading volume in the overall African market has grown by 100%. March also witnessed a closer relationship between gold and Bitcoin.

Bitwise, a cryptocurrency asset research firm:

The trading volume of almost all exchanges increased in March. The fastest growth in trading volume was seen on North American exchanges (including Coinbase, Kraken, and Gemini).

Pierre Rochard, Bitcoin strategist at Kraken:

Compared to the previous month, new users in March increased by 300%, all of them being new users who had no previous cryptocurrency holdings.

Coin Metrics:

As of March 30, 2020, the number of active Bitcoin accounts was approximately 770,915, compared to 718,184 during the bull market period on September 29, 2017.

Mike Belshe, CEO of cryptocurrency custody firm BitGo:

There was a significant demand for loans in March, so we doubled the team handling cryptocurrency loans. During the economic downturn, exchanges and custody institutions actually saw greater profits.

Pascal Gauthier, CEO of hardware wallet manufacturer Ledger:

Compared to the same period last year, hardware wallet sales in the first quarter of 2020 have seen double-digit growth and continue to rise, prompting us to expand wallet production.

Latin America

In addition to the overall increase in cryptocurrency trading volume due to speculative demand, the use of Bitcoin for savings and loans by Latin American citizens continues to grow.

Sebastian Serrano, CEO of the cryptocurrency exchange platform Ripio, stated:

The main use is for storing value, as Argentina is on the brink of a $387 billion debt default, and the public is seeking secure assets. Ripio provides both cryptocurrency loans and trading services accordingly.

Indeed, Argentina is not the only country deeply mired in a default crisis. Lebanon, Ecuador, and Venezuela are also on the brink of debt default. Bitcoin enthusiasts in Lebanon often see Bitcoin as a savings option, and like most Latin Americans, they have little trust in banks.

Jorge Luis Farias, CEO of Cryptobuyer, mentioned:

In March, orders for cryptocurrency point-of-sale (POS) devices doubled, mainly in Venezuela, where more and more people are seeking new payment platforms. We received demand for 100 new POS devices last week, and we recently shipped three new Bitcoin ATMs to Chile, where the fiat currency hit an all-time low in March.

Source: tradingview

Additionally, according to the cryptocurrency data platform CoinDance, the trading platform LocalBitcoins saw record-high trading volume in the first week of April in Chile.

Source: coin.dance

Central and South America

In El Salvador, Bitcoin is demonstrating its practical use as a currency, with the non-profit organization Bitcoin Beach providing Bitcoin as a new payment option for two coastal villages in El Salvador, aiming to create a Bitcoin-driven circular economy.

Bitcoin Beach tweeted:

My daughter bought vegetables in the community's latest form of business with Bitcoin. Last week, 300 families received Bitcoin allowances, which continue to provide food for families during this crisis and keep these transactions running effectively.

Mauricio Di Bartolomeo, co-founder of Ledn, a cryptocurrency lending institution for Venezuelan expatriates, mentioned that Bitcoin savings accounts for Mexican and Argentine users on its platform are growing, including businesses related to obtaining dollars or stablecoins through Bitcoin loans. Latin Americans still account for 60% of Ledn's new users in 2020, while North American users make up about 16%. The user base has doubled over the past 6 months.

Bartolomeo said:

I believe this is closely related to the economic situation in Argentina and Mexico. Mexico's exchange rate is highly volatile, and we expect a high demand in Latin America for saving options in non-local currencies.

If the world faces a larger-scale economic crisis in the future, stable Bitcoin savings rates and loan interest rates, along with price increases, could be a more optimistic signal for Bitcoin.

Asia

Similarly, some Asian countries are responding to economic downturns by increasing economic interdependence. Deng Di, a key member of the China Blockchain Application Center and the National Internet Finance Association of China (NIFA), pointed out:

In the Shanghai Cooperation Organization with Russia, Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan, they agreed in March to operate in Renminbi (instead of USD) when developing trade and issuing bonds. China aims to make the Renminbi a regional trading medium and eventually a global currency like the USD. China's national digital currency will accelerate this process.

Tilektes Adambekov, a Kazakh entrepreneur, also stated in April:

The cryptocurrency industry can provide distributed infrastructure. I am working on establishing a regional cryptocurrency exchange that will eventually include fiat trading and security token offerings, although this is unrelated to China's digital currency plans.

Adambekov mentioned during a meeting with Chinese business partners in January that Kazakhstan will eventually adapt to the global development strategy of the Belt and Road Initiative. As for Bitcoin, traders in these markets sometimes liquidate their cryptocurrency investments and switch to real estate amid high volatility in the oil and bond markets.

Middle East

As stocks and bonds face a widespread decline, investments in gold, oil, real estate, and Bitcoin trading seem to be on the rise.

Makram Hani, CEO of Dubai real estate brokerage firm Arms & McGregor International Realty, mentioned that his company is involved in a $140 million Dubai real estate acquisition, utilizing various cryptocurrencies from an Asian buyer. Hani said:

Among hundreds of potential clients interested in purchasing real estate with cryptocurrency, the most popular properties are located in Dubai, London, and Berlin. It seems that Bitcoin holders in more regulated countries are using traditional assets for liquidity hedging, while other Middle Eastern countries are more willing to accept large amounts of cryptocurrencies. We have seen a significant increase in real estate transactions conducted with Bitcoin or other currencies.

Yehia Badawy, co-founder of the Middle Eastern cryptocurrency exchange Rain, is providing Bitcoin trading services to users in the Dubai region through its Bahrain-based exchange, with a 200% increase in trading volume from January to March 2020, with "whale" traders accounting for 34% of new user registrations.

Due to the slump in the oil market, Bahrain, Saudi Arabia, and Qatar are working to maintain investor confidence in their debts. The collapse of the oil market could have a more severe impact on economically weaker countries like Lebanon and Iraq, which already had heavy external debts before the virus outbreak.

Mikhail Kholodov, an oil market expert at the Russian oil holding company MOL-Russ LLC, believes that today's global market is like a casino where all speculative activities and hot money converge, and they will not calm down quickly. As nervous investors gradually increase in the market, they will compare Bitcoin with some tangible investments like gold or real estate.

Data Source: CoinDesk