Part 1: How can crypto become the finance of the future?

First published on Coinpass.com - Markets blog

Throughout history people have turned to gold as a safe haven and bolt hole for their money during times of economic hardship. Today there are some who are putting their money and faith in Bitcoin instead. Then there are others who believe Bitcoin could revolutionise the financial system and become the global monetary standard. Is crypto the answer and will it become the finance of the future? There are compelling reasons why it just could be a possibility. 

Deflating Fiat Currency 

We are only just emerging from a 2-year stranglehold on our financial system at the hands of Covid-19. The economy has not fully recovered yet and we are still trying to adjust to a new way of living. Last month, electricity and gas prices increased by 54% and are expected to increase again later this year. Filing your car up at the fuel pump has increased on average by 33% over the last 12 months, and there is still a war raging in Ukraine, the full economic ramifications of which are yet to be fully borne out. The entire world economy is being affected. The World Bank cut its growth forecast for 2022 to 4.1%, and lower still to 3.2% in 2023 - down from 5.5% last year. The International Money Fund also revised its projections for global economic growth from 6.1% in 2021 down to 3.6% for 2022-23.  

Food, fuel and raw material production have been affected by the war, driving up the price of goods and services because Russia and Ukraine play a massive part of the global supply chain. The increase in cost is being felt everywhere but perhaps more markedly in the poorest countries. Businesses are now looking towards domestic supply chains, and as the cost of making something is more expensive now than a year ago, combined with the diminishing rate at which your fiat money can purchase something, this has doubled the impact for regular people the world over. 

Investing in the more regulated assets like forex, stocks and shares might be the ‘safer’ option, but experimenting with crypto could generate greater returns in far less time. According to the IMF, Bitcoin is no longer viewed as a fringe digital asset for risk diversification. Bitcoin’s market value has by in large synced with the stock exchange since the start of the pandemic and is trending upward. There is still huge market volatility for Bitcoin over the same time period compared to stocks on the S&P 500 index, so the risk-reward factor remains, but when the rewards pay off, the returns for investing in crypto are magnitudes higher. 

Financial Independence and Freedom 

Giving people control of their own money, especially in parts of the world where there is conflict, civil unrest, or simply where the poorest cannot open bank accounts, is empowering. Protestors around the world are turning to crypto to raise funds for their cause after bank accounts are frozen by oppressive political regimes. Following a tweet by the Ukraine government to help fund its war defence, a reported $100 million in crypto was donated. Whilst fleeing their homes, the citizens of Ukraine were able to convert their money into crypto easily and quickly using their mobile phones. Cryptocurrency is increasingly becoming an integral part of many philanthropic and humanitarian movements. 

Crypto Collateral 

UK house prices are being down-valued and mortgage lenders are adjusting their affordability calculators as inflation rates continue to rise. Could the future of crypto lie in collateral instead as a way to offset these types of moves? There are already products emerging in the housing markets. Milo, Ledn, and Figure Technologies are three companies that are offering 30-year, 100% LTV mortgage loans backed only by your Bitcoin as collateral without the need to sell it. 

0% interest loans backed by 2x-3x crypto collateral have emerged with companies like Nexo, though you risk forfeiting your crypto collateral if the market price drops below a predetermined point. The loans are offered without the need for credit checks – a bonus for people with poor or no credit history. In a report last week by Bloomberg, Goldman Sachs announced they had offered their first bitcoin-backed cash loan to a borrower. 

Nexo have also joined forces with Mastercard to create the first ever crypto backed credit card. The card will only be available in a selection of European countries to begin with, and will offer borrowers some significant benefits over typical credit card products, such as 90% LTV of their crypto, no monthly fees or minimum repayments, and 0% interest if borrowing remains below 20% of their LTV. 

In Summary 

As financial powerhouses like Mastercard and Goldman Sachs join the crypto movement, digital assets are starting to become more mainstream. Moving your money out of a deflating fiat currency and into a cryptocurrency now could prove to be a shrewd investment strategy. 

Coming soon, part 2 will examine the obstacles that need to be overcome before crypto can be fully adopted and accepted by society. 

The views and opinions expressed therein are the authors, and are not intended to be used as advice to trade on the crypto markets.