“Cryptocurrency marks the era to the end of money counterfeiting.” ― Gun Gun Febrianza
The market of cryptocurrency has continuously evolved even when the global Covid-19 pandemic is destroying economic developments of most of the sectors in the world. And then, the current societal and economic situations make people to hold less cash because of swinging market. Hence, the financial world has started to focus on cryptocurrency since it is considered a safe-haven asset against market inflation and volatility. The key theme of this article is to tell you how cryptocurrency can become a safe-haven asset better than traditional assets.
Top Cryptocurrencies in the World
There are more than 4,000 cryptocurrencies in the world as of January 2021. Let’s see some of the top cryptocurrencies preferred among investors.
Bitcoin, the first cryptocurrency, kick-started a new digital revolution in 2009. Bitcoin exchange is a marketplace which allows people to sell or buy Bitcoins for various currencies. The Bitcoin price surged because Tesla invested 1.5 billion USD in the cryptocurrency January of this year. Now this is the largest coin and digital currency by market cap value.
Ripple plays a major role for regulated financial institutions with a payment and settlement network. It partners with some global universities with the purpose of stimulating blockchain-related research and innovation. Ripple’s native currency XRP, which eliminates unlock trapped capital and pre-funding, provides the best digital asset for global payments.
Ethereum, a software platform, makes way for developers to come up with apps on top of it and for users to invest on. It was launched in 2015, has a general programming platform to support blockchain-focused mobile developers. Its native currency ether is used as an approach to exchange value and pay for computing power, and work much faster than Bitcoin. Ethereum has partnership with Microsoft for the project of ConsenSys.
Tether, a blockchain-based cryptocurrency and a stable coin, tries to keep the value of cryptocurrency stable. Sometimes traders use this cryptocurrency to escape the massive volatility. When it comes to Tether, transparency is the vital factor because the value of their reserves is published every day. Its blockchain-enabled technology offers world-class security with international standards and regulations.
Cardano, a blockchain platform for trendsetters, leads a positive global change with a team of engineers, mathematicians, and cryptography experts who basically did the research and extensive experimentation. It is aiming to support financial institutions with features of KYC/AML and add features of side chains and atomic swaps for interoperability with other blockchains. Cardano combines technologies to provide services with unparalleled sustainability and security.
Litecoin, founded in 2011, is one of the earliest cryptocurrencies in the world and is also known as “silver to Bitcoin’s gold”. We can store Litecoin in specialist hardware device, our digital wallet or online crypto bank. And also, we can store and send fractions of a coin to anyone in the world at any time. As of this year, Litecoin is the sixth-largest cryptocurrency in the world.
Instead of holding funds with a third party, Uniswap, a decentralized finance, allows customers to trade directly through their wallet and it operates on the Ethereum blockchain. UNI, the native token of the Uniswap, entitles that its holders can vote on changes to the protocol. This platform is a perfect example of what decentralized applications are capable of.
USD Coin which works like a digital content, a stable coin created by Coin base and Circle, is programmed to be a more legally-compliant stable coin in favour of US laws and regulations. Initially, USDC was an Ethereum token, later started running on multiple blockchains and is the world’s leading digital dollar stable coin.
Celsius Network, a cryptocurrency-centred financial service, allows customers to earn interest related to crypto assets and offers interest-bearing savings account, borrowing, and payments with digital assets. Celsius offers a platform of curated services, abandoned by largest banks, like zero fees, fair interest and lightning quick transactions.
What Are Safe-Haven Assets?
If investments or assets increase in value or retain their value during any economic crisis, they are considered safe-havens. The key objective of the stand of looking for safe-haven asset is to avoid losses and decrease their risks if markets dive and preserve wealth which is highly-sought by investors. Generally, a role of a safe-haven asset is to diversify an investment portfolio.
Some of the investments considered safe-haven assets don’t perform well during economic difficulties. Hence, the investors who look for safe-haven assents need to perform a kind of diligence research before purchasing any asset. Traditionally, the most popular safe-haven assets are: stocks and bonds, commodities, real estate, US treasury bills, oil, foreign currencies and precious metals like silver and gold.
Characteristics of a Safe-haven Asset
- Because of high liquidity, we can convert it into cash easily.
- The supply of safe-haven asset is less than its demand.
- The safe-haven asset maintains high demand continuously.
- It continues to offer good use for the long term to sustain demand.
- This type of asset does not turn down in quality.
Cryptocurrency A New Safe-Haven Asset?
Several financial experts from reputed universities consider that cryptocurrency has gradually become a safe-haven asset for an investment portfolio since it can offer security during any economic crises. For example, the price of Bitcoin has been rapidly increasing during COVID-19 lockdowns that have resulted in massive unemployment.
Bitcoin has achieved the status of the best-performing asset in the decade in spite of its sometimes-extreme volatility. Compared to other safe-haven assets such as stocks and bonds, commodities, US treasury bills, oil, foreign currencies and precious metals like silver and gold, Bitcoin outperformed all the traditional assets.
Why are cryptocurrencies so popular among investors?
We realize that cryptocurrency has left its footprint in world of finance. More and more investors focus on investing in it. Nowadays cryptocurrency is so popular for various reasons. Let’s see some of them.
- Rising inflation and swinging economy push people to prefer cryptocurrency.
- Investors consider that cryptocurrencies are the potential currencies and they become more valuable in the future.
- In the current pandemic situation, people are interested to hold less cash.
- Nobody can alter the financial data of every transaction.
- Every record of transaction is well structured with blocks.
- Cryptocurrency supports every industry with more reliable approaches.
- Cryptocurrency provides a great deal of transparent transaction.
- We can store the data in a hack-proof centralized database.
In view of the above, we can conclude that traditional assets, gold or silver, are not competent enough to protect investors’ wealth during any economic or stock market crisis. A number of investors and financial analysts consider that cryptocurrency could be a safe-haven investment during the time of crises since the Covid-19 has made the worst financial panic all over the world. Cryptocurrency is a new digital gold as it can play a major role during an economic panic. Moreover, the digital money which cannot be duplicable in the digital world has enormous value, and can eliminate the need of approaching any bank, currency exchange fees, credit card fees, money transfer fees and more. As per the report of JP Morgan, the market of cryptocurrency keeps evolving and increasing numbers of investors. Hence, either institutional investors or individual investors can consider that the cryptocurrency is a safe-haven asset.
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