Why Covid-19 Can Accelerate Adoption of Cryptocurrencies And Blockchain?

Prior to Covid-19 the world was already facing a record level of global debt and concerns that this could lead to the next global financial crisis. This unprecedented debt burden is now further ballooning as governments and central banks race to support economies reeling from a massive pandemic-driven plunge in demand and forecasted Great Depression-levels of unemployment.

While governments and central banks understandably work to “do whatever it takes” to soften the pandemic’s economic blow, concern over the unprecedented monetary and fiscal response to Covid-19 is already driving more people to seek financial shelter in traditional hard assets such as gold, and cryptocurrencies like bitcoin. Since the beginning of April, the price of bitcoin has steadily climbed 33%, and over the past twelve months, it has approximately doubled in value.

As the cracks in the banking systems are now being pulled further into view,  it has reinforced the benefits of decentralized networks, like the Internet, as resilient and reliable during times of uncertainty.

The growing use of cryptocurrency demonstrates the need for our financial systems to be as robust as the Internet.

As central banks cut interest rates to near zero, or even into negative territory, savers in many countries are having difficulty earning meaningful interest on their deposits. We see more and more savers now turning to the world of “decentralized finance” (or DeFI) interest-earning platforms, a number of which have been started by Indian entrepreneurs. Over the last year the value in DeFi platforms has more than doubled to over $855 Mn, and these platforms offer significantly greater interest rates (6% annual savings rates or more) on cryptocurrency deposits compared to what is available with traditional fiat bank deposits.

Utilizing stablecoins to earn meaningful interest, transact digitally, or store value can be particularly attractive for those concerned about the outsized volatility of cryptocurrencies like bitcoin. US dollar-backed stablecoins, like USD PAX,  can also provide a safe haven for those concerned with local currency instability, a growing problem in countries like Lebanon.

The prospect for cryptocurrency adoption in India also recently received a big boost with greater regulatory clarity provided by the Indian Supreme Court, which opened the door for cryptocurrency companies to work with Indian banks.

We can also expect the Facebook-driven Libra project, which recently unveiled a redesigned (and more regulator-friendly) “Libra 2.0”, to focus significant attention on India. Facebook has more users in India than any other country, and a successful launch of Libra in India could introduce hundreds of millions of people to the many benefits of digital currencies instantly.

There are a number of non-currency uses of blockchain technology that may also receive a significant push in the wake of Covid-19. Ehealth passports and digital identity, food supply chain tracking, and electronic voting are just some of the broader uses of blockchain technology that are being proposed to help with the Covid-19 response and to mitigate the effects of future pandemics.

Next-generation central bank digital currencies that may soon launch in countries like China are expected to leverage blockchain technology. The lack of a widely accessible “US digital dollar” means Covid-19 stimulus payments to Americans needing financial support will take months, rather than seconds, to be delivered.

Other ways central bank digital currency can help with providing government financial assistance compared to traditional paper checks and prepaid debit cards include:

• Efficiency: reducing the cost of payment delivery, which may run into the tens of millions with postal costs, etc. for checks and prepaid debit cards.
• Financial inclusion: facilitate payment to individuals lacking access to bank accounts or low-cost check-cashing services.
• Support the most vulnerable: help ensure payment to some of those most in need who lack a physical mailing address, or those who have relocated recently (eg students).
• Hygiene: encouraging digital forms of payment may help reduce the rate of virus transmission as compared to debit card and check use.
• Efficacy: the receipt and use of digital payments can be more easily tracked to ensure individuals have received financial support and solve the significant “lost check” problem.

Prior to our current crisis bitcoin use was already growing faster from inception than both the personal computer and internet adoption. Crises tend to accelerate historical processes, and the Covid-19 pandemic will likely hasten our transition to a more efficient and transparent blockchain-powered financial infrastructure.

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