Comparing the impact of Coronavirus on Bitcoin and banks

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The Coronavirus pandemic seems to have a good impact on Bitcoin and other cryptocurrencies, but banks are still struggling to reduce the damages.
The world’s biggest banks have faced their valuations plummet, with billionaire investor Warren Buffett bailing out of long-held bank stocks this year—and joining many others investing in gold (though the Oracle of Omaha is still not keen on bitcoin).
As banks are trying to survive in the post-Covid world, bitcoin and cryptocurrencies are expected to see a “pandemic-led acceleration of adoption,” according to DBS chief economist Taimur Baig.
“Pre-pandemic demand was largely speculative,” Baig told bitcoin and cryptocurrency news website Coindesk. “People saw bitcoin had a spectacular run and wanted to be part of that game, so what’s wrong with putting in 1% of assets under management [into bitcoin]. But I think post-pandemic is beyond speculative. It’s more about, ‘This thing has fixed circulation, it will not be debased.’ People are worried about dollar outflow and wondering if they should hold crypto in addition to gold as a safe-haven currency.”
This year, a number of high-profile, established investors, led by the famed Paul Tudor Jones in May, have invested in bitcoin, because it has fixed limit of 21 million tokens and can be a potential hedge against the inflation they see coming as an impact of Coronavirus.
Baig’s comments follow a report he wrote for the Singapore banking giant last month that found 2020 is “shaping up to be a landmark in the history of digital finance,” and cryptocurrency is here to stay.
“There is no point of no return for public and private digital currencies,” Baig wrote, along with a number of his DBS colleagues. “Both remain brave new frontiers, with new use cases, technological developments, and challenges appearing regularly.”
Meanwhile, banking stocks have struggled to survive from the March coronavirus-induced crash, in part due to the massive central bank stimulus measures put in place to offset the damage wrought by the coronavirus pandemic. The measures include central banks globally, led by the U.S. Federal Reserve printing money.
“Low base rates drag down the interest rates that banks can charge on loans and quantitative easing is designed to flatten out borrowing costs too, with the result that credit spreads—the premium in interest rate that a company has to pay relative to a government—are also relatively low,” Russ Mould, investment director at brokerage AJ Bell, said via email, adding “central bank policies may be, unwittingly, doing more harm than good when it comes to the major lenders,” and “seriously undermining banks’ profitability and their ability to earn decent returns on equity.”
Bank stocks have experienced a big hit in 2020—the KBW Nasdaq Bank Index has dropped 33% this year—with loose central bank policy adding to investor concerns over the tens of billions of dollars major lenders have set aside to account for potential loan losses.
“Only U.S. banking stocks have shown any real signs of life in the past few years, but the pandemic, a recession and reversal of Fed policy from tightening to easing (and running policy loose until at least 2023) has taken care of that in 2020,” Mould said.
In contrast, lockdowns, inflation have pushed many toward bitcoin and other cryptocurrencies. Bitcoin and cryptocurrency exchanges around the world have reported sky-high trading volumes and surges of new users over the past months.
Meanwhile, others have said they expect the coronavirus pandemic to boost crypto. In August, U.S. Congressman Tom Emmer said he expects bitcoin to “get stronger” as the world emerges from the coronavirus crisis.
“As we come out of the crisis, bitcoin isn’t going away,” Emmer (R-MN) told bitcoin and crypto investor Anthony Pompliano, speaking during an interview on Pomplianot, adding bitcoin and cryptocurrencies are going to “continue to become more and more important,” because of its decentralized nature.

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