We haven’t even been past the first quarter of 2020 and it has already proven itself to be quite an exciting year with unfortunately more bad news than good.
From the astronomical ecological and biological damage caused by the Australian bushfire crisis to the outbreak of the Wuhan Coronavirus or COVID-19, 2020 is shaping up to be quite a challenging year.
Of particular note, the Wuhan Coronavirus that has swept across China and parts of the world causing thousands of deaths has intensified concerns of a global economic meltdown.
Being an industrial manufacturing hub and home to suppliers of conglomerates such as Nissan, the Coronavirus has been catastrophic for China’s economy with analysts predicting growth of only 4.5% – numbers unseen since the global financial crisis.
Further compounding this issue is the role played by China as one of the world’s key manufacturers and suppliers. For example, due to travel restrictions and the inability to meet demands, tech giant Apple has been forced to delay the launch of its new iPhone which speaks volumes as to the scale of this crisis.
With falling oil prices and fears of long-reaching economic effects that could possibly take the world years to recover from, investors and governments alike are looking to shore up their investments in anticipation of the worst.
Traditionally, precious metals such as gold have always been regarded as a safe haven investment in times of crisis. With its ability to retain value and positive price elasticity i.e. its price increase with demand, it’s easy to see why gold is a favorite amongst investors.
However, as we can see in Currency.com gold predictions for the next 5 years they seem to be rather shaky for gold and other precious metals. So, it may not exactly be the ideal haven investment.
In this article, we take a look at cryptocurrencies such as Bitcoin and Ethereum and whether it really is digital gold.
- Cryptocurrencies are decentralized
If you didn’t already know, cryptocurrencies are essentially a form of digital money that are used as a medium of exchange. They work by securely encrypting financial transactions and acting as proof of a transaction.
Bitcoin, which is arguably the world’s most famous cryptocurrency, first got its start on the deep web where internet surfers and criminals freely mingled and bought and sold goods on the digital black market.
Unlike traditional fiat currencies that are issued by a government’s central financial body, cryptocurrencies like Bitcoin are not controlled or issued by any single entity. This gives cryptocurrencies a remarkable degree of freedom and anonymity which has made them so popular with criminals and individuals who prize their anonymity.
Because it is decentralized, cryptocurrencies are usually unaffected by factors such as government policy or economic downturn. As we’ve mentioned before, experts have raised comparisons between Bitcoin and gold as a safe haven investment.
However, it should also not be forgotten that cryptocurrencies are extremely volatile and have been known to appreciate or depreciate in value with no warning which goes against every rule of a safe haven investment.
- Cryptocurrencies can be easily transferred
During times of great economic uncertainty, a situation known as a bank run may occur. Bank runs are caused by a sudden loss of confidence in a country’s financial system or government which prompts depositors to withdraw their cash en-masse which in turn causes a bank to go insolvent.
Should a crisis occur, a country’s government may even impose a temporary limit on cash withdrawals and transfers in order to prevent capital flight i.e. a mass exodus of financial assets.
For example, during the May 1998 riots in Indonesia, ethnic Chinese Indonesian citizens were attacked and raped while their businesses were destroyed by enraged rioters. As a result, Indonesia was hit hard by the sudden outflow of capital as ethnic Chinese citizens fled the country taking everything with them.
Being in a digital form with no tangible presence, cryptocurrencies can easily be transferred from e-wallets with little-to-no fuss thus making them extremely useful in times of crisis. As we’ve seen by the implosion of the Venezuelan economy, fiat currency often becomes worthless in times of great strife.
- Cryptocurrencies are gaining widespread acceptance
While gold may be a precious metal, chances are good that you won’t be able to pay for many goods and services with an actual bar of gold. On the other hand, cryptocurrencies like Bitcoin have been seeing a gradual increase in acceptance worldwide.
Companies like Microsoft and a variety of other retailers all over the world have begun accepting Bitcoin payments with the list growing larger by the day. This makes cryptocurrencies an extremely worthwhile safe haven investment thanks to their flexibility and use worldwide.
Cryptocurrencies could very likely be the way forward however care must be exercised when investing. The volatile nature of crypto and the lack of regulation means that scams and theft are extremely common which inhibits their ability to be a safe haven investment. However, as the market matures anything can be possible.
