If you were around to watch the dinosaurs dying out after a city-sized asteroid hit Earth, you might have reasonably concluded that life on this planet faced a bleak future. But you could have easily missed the little mouse-like beasties thriving in the wreckage whose mammalian ancestors - us, in other words - would go on to rule the world.
Even though it’s caused more than 100,000 deaths around the world, the coronavirus pandemic is not going to send our species into extinction. It could, however, spell economic doom and shake the very foundations of global capitalism. Which is exactly what some people are hoping for. Like the mice who conquered Earth, supporters of a new type of money have often dreamed of rising from the ruins to build a bright new future.
Just over a decade ago Bitcoin, the world’s first cryptocurrency, sparked an evangelical outpouring of utopian thinking. Early investors imagined a world where wealth was removed from the hands of the many and spread across the planet in the form of a decentralised new financial system free of all the booms and busts of the old ones. Some dreamed of a libertarian society free of laws, creating “marketplaces” on the dark web where guns, drugs and other illegal products could be bought and sold in relative anonymity.
Of course, these dreams (or nightmares) have not yet come to pass. Some of the big players bestriding the crypto world now include JP Morgan and Goldman Sachs - the very giants crypto dreamers hoped to slay - whilst the man who founded Silk Road, the most famous dark web drugs bazaar, is now serving a double life sentence. Global capital has seized control of the commune.
The coronavirus is the first major crisis to hit society in the post-Bitcoin era – and it’s a major test which could show if cryptocurrencies are going to reinvent the global financial system.
Bitcoin and most other cryptocurrencies rely on a backbone called the blockchain, which is basically a record of every transaction which links back to the “genesis block” - the first-ever entry in the blockchain made in January 2009.
Bitcoins are created when “miners” crack complex cryptographic puzzles which confirm previous transactions and lock them onto the blockchain. This process will not go on forever and mining will end when 21 million Bitcoins have been created.
This limited supply has prompted hopes that Bitcoin could become a safe haven during stormy times or even a new gold standard - and there’s been no better test of this hypothesis than the Covid-19 pandemic.
Last month, when the US and UK stock markets suffered historic plunges, Bitcoin and all the other major cryptocurrencies followed the traditional markets down - but then buoyed up.
At the beginning of 2020, the FTSE 100 index was sitting at roughly £7,600 but has now dropped to well under £6,000. Bitcoin started the year with its price wavering between £5,000 and £5,550 and is now sitting at a similar value after experiencing a remarkable recovery from the death dive it experienced during March.
Katharine Wooller, UK managing director of the crypto exchange Dacxi, said clients who bought “blue chip” crypto such as Bitcoin or the other major currencies had been very pleased with the performance of late.
“You get a lot of ‘brave new dawn’ language from cryptocurrency people, with a lot of analysts claiming it’s going to reach $100,000 per Bitcoin based on an argument about it replacing gold,” she added.
“During the crisis, it didn’t move in parallel with gold but it recovered well after the initial shock.
“The blue-chip cryptos did really well, recovering harder and faster than traditional investments.”
Bitcoin and the rest of the world’s cryptocurrencies started their journey out of the shadows and towards the mainstream a long time before the pandemic confined us all to our homes.
Sam Moore, a solicitor who is innovations manager at the at Scottish law firm Burness Paull, advised entrepreneurs during the bull market of 2017 when Bitcoin soared from $900 to $20,000, before crashing dramatically in 2018.
“Back in 2017, firms like ours saw a flurry of activity when a significant number of new businesses came to us looking for advice, which mostly focused on regulatory uncertainty,” he said.
“There were a lot of solid ideas which had crypto or blockchain at their core - as well as others which, if I’m being generous, I’d describe as outright scams which we wouldn’t touch with a bargepole.
“Now we have gone beyond the phase of easy money and speculation has died down in favour of ‘whales’ – large investors – and a lot of institutional money coming from the likes of Goldman Sachs.
“In some ways this is a good thing because you have experienced individuals taking part in the crypto environment,
“On the other hand, it’s a bad thing because the original point was to get away from all that.”
What this means is that crypto is no longer the preserve of anarchists and dreamers – or drug dealers and arms traders. The Bank of England as well as central banks in nations like France and China are now openly discussing the prospect of cryptocurrencies, meaning the roll-out of a digital yuan, euro, dollar or pound seems inevitable.
Marco Gazel, a professor of finance at NEOMA Business School in France, believes there’s a chance the coronavirus crisis could push forward the development of cryptocurrencies, but warned against making predictions at a time when we don’t yet know how the pandemic is going to play out, let alone its effect on the economy.
“The performance of Bitcoin has surprised me during the crisis,” he said.
“Some central banks are thinking about cryptocurrencies and maybe the process will be accelerated due to the coronavirus.
"There is optimism, but it’s too early to make conclusions.”
Bitcoin is weathering the storm right now – but this could change at any second. After all, if investors start to get nervous about traditional assets, why would they risk ploughing their cash into cryptocurrencies?
But regardless of whether crypto flourishes during the coronavirus, it seems certain that this emerging sector does not belong to the dreamers of yesterday.
Once upon a time, not so long ago, it was the little people who dreamed of a crypto-powered tomorrow. Now the future once again belongs to the dinosaurs of traditional finance.
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