Could 2020 Be the Year of Cryptocurrency?
Date: May 6, 2020
Read Time: 4-6 Minutes
A 5-Year Roller Coaster That’s Yet to End
For many investors, 2018 looked to be the year that cryptocurrency would finally break into the mainstream edges of American society.
There were a number of successes continuing to impact cryptocurrencies on a global scale. For one, major coins like Bitcoin were fresh off a nearly 7,000% (yes, 7,000%) 3-year price gain. Which means that if you bought a single bitcoin (worth roughly $250) in early 2015, you’d have earned around $17,000 to start 2018.
That’s an unheard-of level of growth. And it was definitely catching the eyes of the general public, as well as the government, Wall Street, and investors across the globe. Factor in the rise of other more “corporate friendly” currencies like Ripple and a sudden storm of media hype to start the 2018 calendar year, and you had the perfect storm for cryptocurrency to finally become adopted for everyday use as a major currency.
But looking back on the past 2-3 years, none of this has really happened.
Bitcoin 5-Year Price Analysis
Although the number of cryptocurrency exchanges available for use around the world has more than quadrupled since 2015 and there is futures trading available, there are no stock market ETFs or SEC-approved indexes for cryptocurrencies. Although popular apps like Robinhood offer select cryptocurrency trading, none of the cryptocurrencies available today are allowed to trade on any major stock exchanges. Very few stores or venues accept bitcoin — you can’t buy a hamburger or order a couch and expect to pay in a cryptocurrency. And as the final nail in the coffin, most reputable governments have placed stringent protocols on the use of cryptocurrencies in business exchanges, given their anonymity and prominent use among criminal organizations.
Rather than flourish in 2018, most major coins ended up losing over 75% of their January 1st value. Bitcoin fell from over $16,000 to under $4,000, and Ripple fell from $3.38 to around $0.37. In a few short months, billions of dollars’ worth of cryptocurrency value evaporated. Many investors lost significant amounts of capital, including some that lost houses, cars, and their entire life savings.
Not long after the collapse, mainstream media hype dissipated as well. Because application in everyday life never materialized, cryptos simply fell back outside the view of the general public and as a result, their value sank.
But 2020 has seen a resurgence.
The Resiliency & Legitimacy of Cryptocurrencies is Put to the Test
Although Q1-Q2 of 2019 saw Bitcoin rise nearly 300% from $3,900 to $10,300, its value dipped back down to around $7,500 by the start of 2020. And despite a sudden fall during the COVID-19 market scare during March 2020, the past few months has seen the coin rise nearly 50% and break $10,000 for the first time in nearly a year. Other major coins like Ripple are up from March lows of $0.14 to stand around $0.25, which also represents a near-50% increase since COVID-19 broke onto the global scene.
Bitcoin 1-Year Price Analysis
But a number of headwinds still face cryptos as they seek to rebound from the past few years of inconsistency.
Across mainstream stock markets, most of the major criticism directed towards cryptocurrencies revolves around the lack of visibility to the transactions that occur, and the lack of any underlying “value” represented by their existence. Technically, American dollars are backed by the full faith and credit of the U.S. government, as are the national currencies of almost every other country.
Similarly, stocks traded on the open markets are backed by the financial operations and assets of the companies they represent. And while some national currencies or corporate stock shares may be weak because the governments and corporations behind them are weak, the point is that there are legitimate systems put in place to measure the worth of these underlying assets and come to a conclusion about their worth.
With cryptocurrencies, there is no “company” or organization backing their value. There are exchanges that regulate the creation and distribution of the coins, but there are no company- or government-driven operations that are occurring to generate underlying value that the coins are representative of. The coins are merely created or “mined” online as part of a virtual system, and then offered to the general public who determine their value based exclusively off demand. And with thousands of individual “coins” that exist today, only a select few have garnered the level of demand necessary to make them profitable.
Warren Buffet Talks About Why He Won’t Invest in Crypto
Despite these arguments, though, crypto enthusiasts and advocates have their own perspectives.
On the proponents’ side, many argue that rational behavior is not what drives demand within most major stock markets today – instead, much of the demand is just as speculative as what exists in cryptocurrency markets. And because the U.S. government stopped matching the printing of USD to gold bullion some time ago, one could argue that the American dollar is now only worth what the demand for it is in general markets – the same as it is with many crypto exchanges.
However, the “full faith and credit of the U.S. government” is still worth something to most people, which makes U.S. dollars one of the most stable and widely-held currencies in the world.
But in order to highlight the truth of their arguments, many crypto enthusiasts have long held that in the event of a major market recession or even depression, as national currencies lost their value and stock markets collapsed, investors would turn to alternative markets such as cryptocurrencies as a safe haven. Many believed this would result in a boost to cryptocurrency prices and serve as an opportunity for their popularity to surge.
However, with the COVID-19 related market collapse in Q1 2020, we didn’t really witness any sprint to cryptos. Instead, the crypto markets seemed to fall even farther than what was experienced in the S&P and NASDAQ (~65% for cryptos compared to 15% for the S&P).
Cryptocurrencies Fall First, But Recover Strong in 2020
As the COVID-19 pandemic first began weaving its way through various provinces in China and then emerged as a global pandemic to threaten the societies of countries on almost every continent, cryptocurrencies showed that they are not so immune to market disruption after all.
While the S&P 500 fell roughly 40% between February 15th and March 15th, Bitcoin fell nearly 55% from over $10,000 to under $5,000. Similar slips were realized by Ripple and other coins like Ethereum and Litecoin. In the end, it seems that despite the claim that cryptos would make a good safe haven during stock market turmoil, they are perhaps more prone to market disruption than their predecessors.
Cryptocurrencies Fall Hard During COVID-19 Scare
However, what has surprised a number of analysts recently is the pace at which the cryptocurrency markets have recovered compared to the major stock indexes.
Since falling to its March 23rd low of $222.95, the S&P 500 has risen by over 20% in a month’s time to now sit at $295.26. However, in the same amount of time, Bitcoin has risen over 40% (nearly double the market) to sit at nearly $9,000 as opposed to its March 11th low of $4,840.
Compared to where they were on January 1st, Bitcoin is up 40% on the year. The S&P is down 0.5%.
Although cryptocurrencies fell heavily during the Coronavirus scare and clearly aren’t the spectacular “safe haven” many advocates have made them out to be, they are also more resilient than what many of their opponents have suggested.
Conclusion: Headwinds Remain, but Expect a Strong 2020 From Cryptocurrencies
Before I admit that I believe 2020 will be a strong year for cryptocurrencies, I would like to note that I’m not currently invested in a single one of them.
As a matter of fact, I am personally still not convinced that the realm of cryptocurrencies can succeed in the long-term. They will likely be around for awhile, but not necessarily as a major currency. This is because I don’t believe any of them will gain major headway with the large businesses and governments that manage our economies. However, in the short-term (at least 2020), I still think there’s a good chance the markets will be strong, especially while volatility in the general markets remains high.
Although a fair amount of government regulation still prohibits cryptocurrencies for use by corporations or as tradable shares via major stock exchanges, there’s still enough media hype surrounding them for investment funds and individual investors to stay interested, especially during a volatile year heading into election season. But, when we look back in 2030 to view the past decade of cryptocurrency growth, I’m not convinced we’ll have any incredible stories to tell.
Disclaimer: Neither I or any of the contributors to this article are currently invested in any cryptocurrencies, and we have no plans to enter any positions or stakes within the foreseeable future. This article is not intended as personal investment advice and is meant only to be educational in nature.