The coming year could be the first major test for cryptocurrencies: a recession on the horizon, a pandemic, a halving and a U.S. election – will Bitcoin survive and thrive?
2020 may prove to be a pivotal year for Bitcoin, cryptocurrency projects, and global finance.
A former Goldman Sachs executive recently revived the “Bitcoin safe zone” argument by announcing he had moved a quarter of his portfolio into Bitcoin. Citing the risk of insolvency among companies or the economic fallout from the coronavirus, he also allocated 25% of his assets to gold and another 25% to cash.
When a company declares insolvency, it no longer has the liquidity required to meet expenses such as rent, inventory and payroll. If too many firms are forced into bankruptcy, a cascading effect could ripple through the economy and cause additional collapses in the months ahead.
This executive says he is shifting much of his portfolio into Bitcoin to guard against corporate failures. Like gold held in a vault, Bitcoin does not “produce” goods or cash flows; rather, it is viewed by some as a store of value or a safe-haven asset capable of weathering economic turbulence.
Such a strategy can seem prudent at a time when equities and commodities face uncertain prospects and the full scale of the crisis remains unknown. Concentrating a portfolio in Bitcoin, gold and cash, as this investor has done, may be one of the more conservative approaches to preserving assets.
2020 could be Bitcoin’s biggest challenge yet. The coronavirus pandemic casts a wide economic shadow—the largest since 2008 and the first true macro test for Bitcoin—while the May halving threatens to disrupt mining networks. A U.S. presidential election later in the year and the aftermath of the United Kingdom’s exit from the European Union add further uncertainty.
In March, U.S. policymakers discussed a potential “digital dollar” as a mechanism for delivering relief payments to American citizens and businesses, signaling that digital currencies and related concepts are being taken more seriously in policy circles.
Meanwhile, the Bank of Korea launched a 22-month pilot program to develop a digital won. This extended trial could reveal the opportunities and limitations of digitizing fiat currency and provide a useful framework for other nations considering similar projects.
The South Korean tests will explore blockchain technology as a distribution model and assess whether it can be successfully integrated with existing financial systems and operational procedures.
The period spanning 2020 and into 2021 could be when many cryptocurrency initiatives move beyond theory and undergo real-world testing for practical use cases and applications. For investors and crypto advocates, that makes this a particularly important and exciting time.