The full impact of the Covid-19 outbreak is now clear with governments around the world injecting trillions of dollars into their economies as an attempt to maintain businesses and social structures. The pandemic also caused an unprecedented market crash with all assets seeing huge drops in value. Rock, Paper, Scissors…
The current social distancing measures in place means that using physical money has virtually stopped and digital currencies are now the ‘only’ way to buy goods, make investments or trade. These events are pushing for quicker technology advancements and leading many people to look in detail at cryptocurrencies as they offer an alternative method of exchanging or storing value.
All currencies, digital or fiat, can lose or gain value and when the global financial markets crashed almost all cryptocurrencies, including Bitcoin, Ethereum and XRP, lost value. Cryptocurrencies quickly recovered, much better than a lot of other assets, and continue to find buyers as other investments come under pressure.
The advantage of cryptocurrencies is they are part of a decentralised financial network, an alternative system which, as we start to understand the long-term reality of the coronavirus, can offer a way of diversifying exposure to traditional markets.
Research (Luno Future of Money Survey 2019) has found that 20% of people in the UK own some form of cryptocurrency. Many are just holding onto the coins (hodlrs) to wait and see if it goes up in value. For these investors or anyone thinking of using their coins or maybe buying more crypto or their first digital currency we wanted to give some advice on the options available.
The opportunities to use cryptocurrencies are increasing all the time. It has never been easier to buy and sell coins and you can buy everything from a house to a hamster. But, like rock, paper, scissors you can always win or lose. So, we hope the information below will help you decided whether you hodl, buy or use cryptocurrencies.
Hodl, Buy or Use Cryptocurrency?
ROCK
Should I hold onto my cryptocurrency?
So many people have bought cryptocurrencies and then decided to sit on their investments that a new word Hodl (from a misspelling) was adopted to describe the trend.
Why Hodl?
Hodlers have normally only put a small amount of their investments into cryptocurrencies so can afford to hang-on and wait for the price they want before exiting. Many may have bought lesser known coins as well as Bitcoin, Ethereum or other major tokens. The smaller coins may have been subject to ‘pump and dump’ market moves which has lost them money, so they may be waiting to get more of a return from their other coins.
Many Hodlers also like the fact they have cryptocurrency in their portfolios and will keep it there just in case. Depending on when they acquired the coins they may have done very well. The problem for the sector is that this reduces liquidity and with a lot of coins being held by ‘whales’ hodling is not helpful. If the hodlers were to start trading their coins this would increase liquidity and most likely push the price up.
Opportunity
Cryptocurrency is still an emerging market, which means volatility is high but so are the opportunities it offers, and as 2020 is proving to be an eventful year (to say the least) it promises to deliver other important developments that are set to impact the crypto world.
Let’s look at next week’s bitcoin halving (which will see a 50% reduction, from 12.5 to 6.25 bitcoins, of the number of bitcoins rewarded for successful mining a block ledger) – this event is expected to help cryptocurrencies mature and give a sense of how it might become a core feature in a very probable and not so distant cashless society. Whilst the public may have mixed feelings about the viability of cryptocurrencies, these and their underlying technology – blockchain – are likely here to stay, so holding onto your virtual coins might be a good idea.
Which coins to Hodl?
With hundreds of different types of cryptocurrencies available in the market, here’s an overview of the three big players:
Bitcoin – the alternative to fiat money
Considered to be the king of cryptocurrencies, being the first to market, Bitcoin benefits from a strong and secure network. The blockchain technology behind it prevents it from being counterfeited, and as the most popular cryptocurrency in the market it reaches more merchants and exchanges. Bitcoin cash, a fork of Bitcoin, is believed to be able to fulfil the promise of being a peer to peer (P2P) electronic cash.
XRP – innovative and advanced
XRP (the payment protocol for Ripple) is known for facilitating cross-border transactions at greater speeds and lower costs than non-distributed ledger platforms, which is positively impacting the global remittance sector and is being backed by national banks – for instance, recently the Egyptian National Bank signed a cooperation agreement with Ripple to establish new channels for inwards remittances.
Ethereum – a valuable cryptocoin
Ethereum has a dual purpose – it is traded as a digital currency like most stable coins and it is used on the Ether network to run applications. Famous for its smart contract – encoded contracts powered by blockchain – means these are protected from hackers, secure from theft and remove the need for the middleman, making Ethereum the crypto choice for companies raising funds in the initial coin offering market.
A growing number of industries and companies are now embracing cryptocurrencies and accepting these (particularly Bitcoin) as payment methods, marking a shift in the way people purchase goods and services.
Hodl Facts
BTC value chart
| Date Bought | Buying Price | Change in value to date |
| 01/01/2017 | US$ 974.99 | 854% |
| 01/01/2018 | US$ 16,533.66 | (44%) |
| 01/01/2019 | US$ 3,824.81 | 143% |
| 01/01/2020 | US$ 7,131.33 | 30% |
When Hodlers bought into Bitcoin (as with all assets) it depended on how they paid as to whether they gained or lost. Crypto investors have been able to make some substantial profits, outperforming many of the main markets, however, those that bought when the BTC price spiked at the end of 2017, are still in negative territory.
PAPER
When’s the right time to buy?
Bitcoin has had a strong start to the year (BTC climbed from US$6,836 Jan 1st to US$9,341 Jan 31st) and even though its price quite often changes significantly – it has seen highs of $20,000 in December 2017 and lows of $6,000 in January 2018 – more and more people are starting to ride on the crypto wave.
At Luno, we have always said that we do not see cryptocurrencies as safe haven assets, as they do not behave like gold or the yen. But, the little correlation with the main markets and the fact that many people still believe that the next halving is not priced in, could lead to renewed interest in the major coins.
Crypto for Return on Investment (ROI)
Speculation, although present across all assets, is at the core of the cryptocurrency market. Nowadays, it is very unlikely anyone will be able to claim large percentage point gains in traditional commodities, however, due to the freshness of the cryptocurrency market, speculators have the opportunity to reap significant rewards by investing in the right projects. Well-informed speculators understand the risks involved and believe the information or analysis they’re relying upon is robust enough to trump those risks and ultimately gain financial reward. Speculation is also at the core of the volatility in the crypto market, and as cryptocurrencies aren’t backed by anything physical, like cash, their price is dependent on the supply and demand.
Over the last couple of years, the crypto market has matured with more oversight and regulatory controls in place. As a result of these new measures and an increased number of institutions supporting the industry, more people are now investing in cryptocurrencies and seeking ways to reduce their risk while still making a return on investment.
If I want to start buying
For those looking to tip toe into the water this could be a good time, and with an array of cryptocurrencies available such as Bitcoin, XRP, Ethereum and Litecoin to name a few, today buying and selling cryptocurrencies is more than just a means to making profits.
It is important to stay up to speed with crypto trends if you’re planning to invest in it. When news about technical improvements are released, you might want to think about buying cryptocurrencies. If there is a significant fall in price, that too might be a good time to buy because you can purchase it at a lower price.
SCISSORS
Is cryptocurrency real currency?
Many people have asked, and some are still asking, why cryptocurrency? Traditional ‘fiat’ currencies are increasingly becoming electronic and the use of hard currency, notes and coins, is reducing at a rapid pace, particularly during these past couple of months due to the pandemic.
So why cryptocurrencies?
There are very good reasons why cryptocurrencies were formed. If the financial services sector was perfect, with no faults, then there would be no need for an alternative way of exchanging, storing and transferring value.
The problem for millions of people – especially those in developing and emerging markets – is that the traditional banking and investment sectors, based on fiat currencies, works for the large the countries and people who control the systems. But, smaller players lose out.
The issues with fiat currency based financial services is that they are not transparent, they are open to fraud and favour the major currencies. Cryptocurrencies based on blockchain technology are transparent, more secure and provide a level playing field. The greater the adoption and use the more they will benefit all countries.
However, the current global financial system, referred to as centralised, has been in place for hundreds of years and won’t change overnight. The new decentralised cryptocurrencies will need to be regulated – linked into centralised systems – which is already happening, and the more cryptocurrencies are adopted, the clearer becomes the benefits they can provide.
Can I use cryptocurrencies now?
Yes, you can. You can buy everything from houses to cars through to coffee and even surfing lessons on the Gold Coast of Australia. As more people use it the more they will be adopted and become commonplace.
The brilliance of cryptocurrencies is that they are held on blockchains, effectively open ledgers which record all transactions. The visibility reduces fraud and shows where value is being exchanged. It has to be remembered that this is new technology which has only been around for ten years, so it is not perfect. It will take time for the systems and functionality to be scaled up so that it can replace a large percentage of traditional fiat based financial services.
It is best to think of cryptocurrency like the first mobile phones. From a few people having them to mass adoption took time, but now, who even remembers landlines…
Why is using cryptocurrencies associated with criminal activities?
At the start of cryptocurrencies some people saw it as a way of moving money illegally. The amount of money involved was very small when compared with traditional fiat currencies, but it did take place. With increased usage and more people understanding the transparency distributed ledger technology offers, the fraudulent activity will be significantly reduced or stopped. The more coffees, cars, houses and surf lessons which are purchased the better.
What are the first steps to using digital currencies?
For newbies, the first step into the crypto world will most likely happen through an exchange, with the two main types of exchanges being fiat exchanges and cryptocurrency to cryptocurrency exchanges. When searching for an exchange, it is important to look through reviews before making a decision to ensure the platform you use is not only reputable but also meets your requirements, in terms of fees, security and accessibility.
As cryptocurrencies develop and become more integrated in the global financial systems, more and more businesses have started to accept cryptocurrencies as payment methods.
Your options for spending digital coins:
- Travelling the world – established travel agents such as Expedia, CheapAir and Destinia accept bitcoin as a payment method to book flights, hotels and car rentals. The increase of the Bitcoin ATM market also means that in most major cities, travellers are now able to convert their cryptocurrency into local currency.
- Gaming – online gaming is a millennial phenomenon that shows no signs of slowing down, and big gaming companies like Xbox, PlayStation and Zynga have enabled Bitcoin as a payment method for its customers.
- Wining and dining (when the lockdown restrictions are lifted) – a few of Subway’s shops around the world now accept payments in bitcoin as well as a few pro-tech eateries such as Pembury Tavern and Burger Bear in London, Old Fitzroy in Sidney and The Pink Cow in Tokyo.
- Paying for services – there are various companies in different sectors that have decided to introduce Bitcoin as a payment method, these include: OkCupid – an online dating website, online subscription newspaper Bloomberg, and WordPress – a platform that allows customers to create websites.
Although the majority of retail businesses is yet to jump on the bandwagon, the growing number of companies accepting cryptocurrencies is promising. To find shops, websites and other places accepting payments in Bitcoin visit Where to spend Bitcoins UK.
However, before delving into the realms of cryptocurrency it is important to do a fair bit of research and due diligence. Understanding how the crypto world functions and how to invest in cryptocurrencies is paramount to ensure risk of loss is kept at bay.
Rock, Paper, Scissors
The great news is that like rock, paper, scissors, whether you HODL, BUY or USE, you can always win.
Cryptocurrencies are probably the single greatest invention and change the world has seen since the first known currency was created by King Alyattes in Lydia, now part of Turkey, in 600BC. Over 2,500 years later cryptocurrencies are just ten years old and in ten years’ time we must ask whether we will still carry around bits of paper and round pieces of metal to buy things…
