Financial Independence
for Every Human

Loading
Curated for you

Phi Trends: Are Digital Currencies The Next Big Thing?

0:00
0:00

October 26th, 2021 21:24

Digital payments have created a great deal of buzz in recent times, and more so amid the pandemic. Current trends are also clearly pointing towards embracing digital currencies as a mainstream avenue, which is likely to have a profound impact on the functioning of financial markets across the globe. Although paper currency continues to remain the main source of transacting, the current trend clearly depicts a major transition in the day-to-day payment and transaction needs of customers. The acceptance of digital currencies has consequently allowed them to morph into Wall Street’s next trillion-dollar asset class, and as the cumulative worth of all cryptocurrencies surpasses the $1 trillion mark, the buzz around it is gradually shifting from its chances of survival to how massive this phenomenon could potentially become. Digital currencies can come in various forms including those issued by central banks, or cryptocurrencies that are price-stabilized (such as stable coins backed by the US dollar) or not (such as bitcoin).

While such currencies earlier received widespread backlash and criticism due to their high risks and lack of comprehensive regulatory framework, they were adopted in greater measure than ever before in 2020. Notably, the rally this year witnessed high participation from large institutional investors, contrasting the purely retail investor-driven rally into crypto markets in the past. The rise of these assets has prompted central banks to revisit their policies and frameworks in terms of the inclusion and regulation of digital currencies.

A recent BIS survey further shows that roughly 86 per cent of central banks are exploring the advantages and shortcomings of central bank digital currencies (CBDCs) and are accordingly transitioning from concept-based research to physical experimentation. The latest BIS paper also notes that central banks are likely to unveil retail CBDCs within the next three years.

Large corporations have also entered the digital currency space at an accelerated pace in recent years. Tech giant Facebook, for example, has been leading developments on a new cryptocurrency, Diem (earlier termed as Libra), which is intended to operate as a global financial payments and infrastructure platform. Digital payments behemoth PayPal as well as Square have also fast-tracked their move into this market by enabling buying and selling of cryptocurrencies on their platforms. However, the real market upheaval was caused by Tesla’s $1.5bn purchase of bitcoin and its announcement that it would soon accept the cryptocurrency as a payment method, which prompted a rally in cryptocurrencies, peer digital currency and cryptocurrency miners.

Given the aggressive push towards the acceptance and adoption of the maturing digital currencies ecosystem, there are a number of ancillary and complementary industries that stand to reap benefits from the adaption of this phenomenon. Accordingly, investing in stocks of companies that are using this technology and enabling its growth could prove to be a successful alternate strategy for gaining from this rally. For instance, semi-conductor companies such as Nvidia and AMD are world leaders in designing graphics processing units (GPUs), which have been found increasingly useful in computing-intensive applications such as AI, data centres, and blockchain – a foundational block in creating crypto assets.

Meanwhile, digital payment companies such as PayPal, Visa and MasterCard are also poised to profit from an uptick in digital currency adoption, as their existing infrastructure already supports the seamless transfer of virtual money. Such companies have been accordingly accelerating this move, evident in their recent partnerships enabling the integration of bank cards with digital and cryptocurrency wallets, such as Visa with Coinbase, and MasterCard with BitPay, in 2020. PayPal, meanwhile, was responsible for sparking the latest flight to bitcoin assets after it announced plans to extend buying and selling options within bitcoin and some other major cryptocurrencies to its 346 million users in October 2020.

Another phenomenon that is quickly gathering momentum is that of digital asset wallets. The potential in this avenue is sharply rising, driven by initiatives such as Visa’s Fast Track programme, through which the firm brought in 25 cryptocurrency wallet providers (Fold, Cred, etc.). A report further suggested that Apple could unlock a potential multi-billion dollar business by making its foray into crypto trading within its Wallet app. With the uptick and growth in digital assets trading, investing in companies like CME Group, which operates one of the largest bitcoin futures exchanges, is also likely to prove beneficial in the long term.

In recent months, digital currency stocks and ETFs have touched record highs due to consecutive rallies. Their performance is thus worth tracking, especially over the last year. Bitcoin had an especially phenomenal run, exploding with a mind-numbing 303 per cent price surge in 2020, and a surge of over 608 per cent from the beginning of 2020 (as on February 16, 2021), breaching the historic $50,000 a coin mark. The bitcoin frenzy is also spreading to associated companies, such as bitcoin miners Riot Blockchain and Marathon Patent Group. On February 11, Riot Blockchain achieved a milestone in its crypto mining operations courtesy of the bitcoin price surge, with its record hash rate capacity leading to a roughly 26 per cent spike in production and driving its stock up by 25 per cent in the same day. Marathon’s aggressive cryptocurrency mining activity is also drawing rising attention from investors. Its stock jumped nearly 113 per cent in the first two weeks of February, and by more than 317 per cent in 2021, and a staggering 4,850 per cent since 2020. To draw a comparison, the S&P 500’s modest rise of just over 16 per cent in 2020 paled by a large margin. Digital currency ETFs have displayed a growth spectacle that is equally remarkable.

The Grayscale Bitcoin Trust (GBTC) surged 291 per cent in 2020 and cumulatively jumped by over 514 per cent since the start of 2020 (as on February 16), while the Bit Digital ETF witnessed an exponential price multiplication of nearly 70 times from $0.4 to reach $28.3 (as on February 16). Such performances only highlight the rapidly rising interest from retail and institutional investors in digital assets. The adoption of digital currencies is only expected to accelerate in the foreseeable future. Moreover, institutional investors have been warming up to exploring this avenue, even as governments and central banks move closer to officiating digital currencies.

More radical or extreme cheerleaders of this phenomenon have even suggested its potential as a digital form of global cash, or the first global currency. Whatever the outcome, the reward from hopping onto the digital currency bandwagon is imminent, if investors aim to gain by levelling the playing field in a highly digitalized post-pandemic world.

Source: https://gulfbusiness.com/phi-trends-are-digital-currencies-the-next-big-thing/

Similar Content

The Five Stages of Small Business Growth
Freelance2Freedom Team
How to Drive Your Career Growth in 6 Easy Steps
Freelance2Freedom Team
How to Make Money as a Graphic Designer in 2023?
Freelance2Freedom Team
How to Make a Financial Plan Easily?
Freelance2Freedom Team
Future of Crypto: Amazing Facts to Know
Freelance2Freedom Team
Key Investment Concepts Beginners Should Know
Freelance2Freedom Team
Secrets to Build a Lasting Career Goals
Freelance2Freedom Team
Reasons Why You Should Prioritize Investing
Freelance2Freedom Team
Lead with Purpose: Inspiring Leadership Lessons from Today's Top CEOs
Freelance2Freedom Team
Career Advancement Hacks: How to Fastrack Your Professional Growth?
Freelance2Freedom Team
Mastering Leadership: Essential Skills for Inspiring and Leading Your Team
Freelance2Freedom Team
Free Courses to Check Out if You're Thinking of Freelancing
Freelance2Freedom Team
5 Amazing Website Tools for Every Entrepreneurs
Freelance2Freedom Team
Advantages of Being a Self-employed
Freelance2Freedom Team
Tips for Building Strong Client Relationships
Freelance2Freedom Team
Top Industries to Work for Expats in Dubai
Freelance2Freedom Team
Tips and Strategies for Launching Your Venture During Challenging Times
Freelance2Freedom Team
Are Co-working Spaces Suitable For Freelancers? Let's Find It Out!
Freelance2Freedom Team
Budgeting Tips for Millennials: How to Manage Your Money in Your 20s and 30s?
Freelance2Freedom Team
High-Income Skills You Can Learn in 2023
Freelance2Freedom Team

Comments

You need to Log In to post comments..
AdBlock detected
Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker on our website