The COVID-19 crisis has paralyzed the global economy, creating difficult scenarios for the future of major industries. The International Monetary Fund (IMF) expects the world to face the worst economic recession since the “Great Depression” of the 1930s. So far, cryptocurrencies have shown notable resilience among financial assets. Discover five cryptocurrencies that could serve as potential safe havens to protect capital during a looming global recession.
Maker and MCD: true decentralization for stablecoins
Interest in stablecoins surged last year, driven by high-profile projects such as Facebook’s Libra proposal and China’s e-yuan initiative. These developments pushed digital stable currencies into the spotlight and sparked serious debate about whether cash could eventually be replaced by digital alternatives.
Stablecoins are digital tokens pegged to the value of a fiat currency like the US dollar or the euro, and some are tied to commodities such as gold or oil. Many stablecoins rely on real-world assets to maintain a 1:1 peg with a fiat currency, which compromises the decentralized nature that characterizes cryptocurrencies like Bitcoin.
Maker (MKR) and its multi-collateral DAI (MCD) offer an alternative model. Multi-collateral DAI maintains a value roughly equal to $1 through a system of collateralized debt positions (CDPs) and other stabilizing mechanisms. To generate MCD, Ether (ETH) is locked into smart contracts that act as CDPs. The protocol incentivizes market behavior that keeps DAI stable.
MKR is the governance and utility token within the Maker ecosystem: it is used to pay fees, governs the system, and can fluctuate in value over time. MKR holders have voting rights on protocol decisions. For investors seeking to distance themselves from centralized financial systems, acquiring MKR or MCD can be an attractive option. Several major platforms list these tokens for trading and custody.
Bitcoin vs. gold: rivals or allies in a recession?
For years, Bitcoin has been compared to gold as a digital store of value. Both assets are limited in supply and perceived by many as hedges in turbulent economic times. Historically, gold has been a reliable safe haven and performed well through crises, including the 2008 recession.
Bitcoin emerged in reaction to the 2008 financial crisis and is now undergoing one of its first major real-world tests as a potential safe haven. Despite coronavirus-driven market volatility, Bitcoin’s price recovered in the run-up to the 2020 halving that took place recently. Compared with its price at the start of the year, Bitcoin has delivered gains of more than 26% so far in 2020, a notable result given the challenges facing global markets.
Gold has also shown a strong upward trend, bringing its 2020 gains above 14%. Together these two assets have attracted investors looking to protect savings or park capital in more resilient instruments. Rather than being mutually exclusive, Bitcoin and gold have both proven to be viable options during economic uncertainty.
Ethereum could surprise in 2020
Ethereum, the leading smart-contract platform, expects structural changes to its consensus mechanism. Since launch, Ethereum’s development has blended ideas from both proof-of-work (PoW) and proof-of-stake (PoS). The next major upgrade—Ethereum 2.0—will gradually implement PoS through a planned migration protocol.
Why might this upgrade change Ethereum’s outlook? Ethereum 2.0 aims to solve key scalability challenges and transition the network to a more sustainable model, potentially strengthening Ethereum’s position in the industry. The timeline for the upgrade has been discussed publicly by project leaders; some projections have suggested a rollout in mid-2020.
Analysts generally expect the upgrade to be bullish for Ethereum’s price and long-term adoption. Staking, for example, is cited as a mechanism that could enhance ETH’s value proposition as a functional store of value. Several commentators also predict the network improvements could trigger renewed buying interest and a price rally.
Ripple: a key player in the tokenization of money?
Although XRP has underperformed over the past two years, it remains positioned to play a significant role in the digital transformation of monetary systems. Tokenization and the shift from cash to digital solutions appear increasingly likely. Some industry surveys and reports have suggested that digital currencies could displace cash in many contexts by 2030.
Ripple’s xRapid and related technologies aim to bridge existing banking infrastructure with digital value transfer solutions, notably improving the speed and cost of cross-border payments. The ultimate success of these solutions depends on the evolution of Ripple Labs, the company behind XRP. For now, XRP has traded in a prolonged consolidation around low price levels and is awaiting a decisive breakout.
In summary, a handful of cryptocurrencies—stablecoins like DAI, digital stores of value such as Bitcoin and Ethereum, and payment-focused assets like XRP—offer different approaches to capital preservation and utility in a recessionary environment. Each carries its own risks and potential rewards, so investors should evaluate them against their risk tolerance and investment goals.