The Changing Cryptocurrency Landscape During the Pandemic and Beyond

Crowdfunding trends suggest that cryptocurrency and other forms of tokenized assets are becoming increasingly important to everyday investors in 2020, especially in the COVID-19 pandemic age. In the U.S., cryptocurrency is increasingly in the mainstream, with the federal government and big banks seriously weighing some exciting new initiatives.

The Digital Dollar

In June, committees in both Congress and the Senate held hearings about financial inclusion, which means expanding access to financial resources, especially for those who do not have bank accounts. One idea was FedAccounts or direct accounts from the Federal Reserve for U.S. citizens to use. Another idea was a central bank digital currency (CBDC), also called a digital dollar. As quoted in a CoinDesk article, Sen. Tom Cotton (R-Ark.) said that the country needs a digital dollar because “The U.S. dollar has to keep earning that place in the global payments system. It has to be better than Bitcoin”.

Former Congressional Fintech Task Force Committee Chairman and co-founder of the Digital Dollar Project J. Christopher Giancarlo compared our existing financial system to last century’s broken-down bridges. “It’s about on-ramps into the financial system and making them as simple and accessible as possible,” he said at the Congressional hearing.

Adding even more credibility to the crypto industry, The Federal Reserve Bank of Boston, also known as The Boston Fed, is seriously considering the digital dollar, in collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative. At this time, more than 30 blockchain networks are in the running for potential digital dollar experiments, according to CoinDesk.

Cryptocurrency Investment at an All-Time High

In July, Cornerstone Advisors released a comprehensive survey of cryptocurrency use in the U.S. The study clearly shows the public’s increasing interest in cryptocurrency. For some background from Forbes, trading of Ethereum, Bitcoin, and other cryptocurrencies rose early this year and reached a new high in February. This increased cryptocurrency trading level remained steady through May and into the era of the COVID-19 pandemic. Additionally, bitcoin revenue for Square's Cash App in the first quarter of 2020 was $306 million USD, up from $65 million USD during the same period last year.

Now, 15% of adults in the U.S. hold cryptocurrency, and more than half of those were first-time cryptocurrency investors in January through June of this year. These first-time investors acquired about $67.5 billion USD worth of cryptocurrencies, or about $4,000 USD per person. As a point of reference, the self-reported value of such cryptocurrencies owned in the U.S. before this year is about $111 billion USD, almost $7,000 USD per person, according to Cornerstone Advisors.

Furthermore, half of the first-time cryptocurrency investors changed their primary banking relationship within the past six months. According to a recent letter from the Office of the Currency Comptroller, national banks may now offer cryptocurrency custodial services and fiat bank accounts. Interestingly, out of all the investors during the so-called “Bitcoin binge,” 47% are customers of the corporate giant Bank of America compared with 21% of all consumers who primarily bank with Bank of America. The Moon Banking website even ranks banks according to its “crypto friendliness” score. In the U.S., USAA and Ally Bank top the list.

Other Experts Weigh In

Millennials ages 26-40 made up 57% of this year’s cryptocurrency investors, and evidence suggests this trend will continue through the pandemic and beyond. A recent CoinDesk editorial eloquently described how their traditional investment options are now extremely limited, thanks to the changes COVID-19 has wrought. Traditional stocks are now “in a bubble inflated by massive amounts of central bank intervention” and seriously “overbought.” Additionally, neither bond yields nor corporate earnings are likely to keep pace with inflation any time soon. In this situation, cryptocurrency investment could be the proverbial light at the end of the tunnel, as expressed here: "If younger generations can accept Bitcoin’s promise of digital scarcity and censorship resistance and value its protection against currency debasement,

political uncertainty, confiscation, and economic dependency, it will look increasingly valuable relative to the low yields on overvalued fiat-based assets."

Moving back to the digital dollar for a moment, the editorial indicated that even the Official Monetary and Financial Institutions Forum (OMFIF) is seriously pondering it to maintain so-called “Dollar Supremacy.” This major think tank comprises banks, sovereign wealth funds, and other big players with great power to shift the financial sector as we know it today.