Jurica DujmovicMay 18, 202304:00 PM Eastern
The financial landscape is shifting in the wake of the recent banking crisis, and cryptocurrencies are at the heart of this transformation.
As we grapple with the implications of these changes, it’s helpful to gain insights from those at the forefront of this revolution.
So, I have reached out to five experts in the field to shed light on the role of central banks, the resilience of cryptocurrencies and the future of digital assets in wealth management.
The Role of Central Banks and the Impact on Cryptocurrencies
Central banks — such as the Federal Reserve — play a crucial role in managing the financial landscape. Namely, their monetary policies have profound implications for asset prices, including cryptocurrencies.
However, the recent banking crisis has raised questions about the effectiveness of these policies and their impact on the crypto market.
To delve deeper into this issue, I turned to Emil Åkesson. He is a founder and chairman at CLC & Partners, which is a blockchain and business consulting company focused on helping organizations achieve success in the complex world of web3.
With his extensive experience in the financial sector, Åkesson offered a nuanced perspective. He explained that “central banks are responsible for maintaining monetary stability by managing inflation and unemployment levels through monetary policies.”
This can be done with traditional tools — such as manipulating interest rates and conducting open market operations — which have profound implications for asset prices across the board.
He went on to discuss the recent actions of central banks, highlighting the Fed in particular: “An extended period of low interest rates, followed by a sharp increase in rates to battle inflation, had a major impact on banks such as Silicon Valley Bank.”
Although the financial environment the Fed has created is helpful in battling inflation, Åkesson notes that it has consequences.
Namely, low interest rates discourage savings and promote investments in higher-yielding, often riskier assets. Meanwhile, high interest rates do the opposite.
The Resilience of Cryptocurrencies in Times of Economic Uncertainty
Despite the turbulence in the financial markets, cryptocurrencies have shown remarkable resilience.
This resilience is not just a testament to the robustness of the technology behind cryptocurrencies, but also to the faith that investors have in them.
To elaborate on this topic, I reached out to Lucas Kiely, chief investment officer at Yield App (YLD, Not Yet Rated). He has been at the forefront of this digital wealth platform that provides safe custody for digital assets and enables users to exchange and earn at market-lending rates.
Kiely began by sharing his insights on the behavior of crypto markets during periods of extreme stress: “In March 2020, when the world was seized by the worst pandemic it had seen in 100 years, Bitcoin (BTC, “A-”) and the then-nascent decentralized finance sector boomed.”
He continued, “By the end of that boom cycle, Bitcoin climbed to over $60,000 per coin. And the entire cryptocurrency market was valued at close to $3 trillion.”
Next, he explained the unique characteristics of cryptocurrencies, which make them resilient.
As you probably already know, Bitcoin’s main reason for existing is to be the ultimate crisis asset when the unthinkable happens — essentially, the collapse of the U.S. dollar.
After the implementation of aggressive monetary easing in 2009 following the 2008 Global Financial Crisis, BTC was created to hedge against what its founders predicted would become hyperinflation in the U.S. and other parts of the Western world.
Overall, the resilience of cryptocurrencies highlights the potential of crypto to provide individuals with greater control over their finances.
However, it’s important to remember that while cryptocurrencies offer a hedge against economic uncertainty, they are not immune to market fluctuations and regulatory changes.
Potential Opportunities and Challenges for Cryptocurrencies
Although the current financial landscape is challenging for all risk assets, it also presents opportunities for cryptocurrencies.
Nevertheless, the volatility of the crypto market — coupled with regulatory uncertainties — makes it a difficult and complex field to navigate.
To shed light on these complexities, I sought the expertise of Nick Ranga, senior cryptocurrency and forex analyst at TheBull.com.au, which is an independent analysis and news source on global stock markets.
“Cryptocurrencies and blockchain technology undoubtedly have huge potential,” Ranga began. “They are often presented by crypto advocates as the cure for all financial problems. However, much of their potential remains unrealized.”
Ranga’s comments underscore the complex interplay between traditional financial systems and the emerging crypto industry. While cryptocurrencies offer potential solutions to financial challenges, they also face regulatory hurdles and market volatility.
In particular, he emphasized the impact of recent economic factors and regulatory attempts on the crypto industry.
First, higher interest rates mean higher borrowing costs and a lower appetite for risk. With less investment money to go around, volatile assets, such as cryptocurrencies and high-risk stocks, tend to decline.
Another key factor to consider is the Securities and Exchange Commission’s heavy-handed effort to bring the whole crypto industry under its jurisdiction. If the SEC can achieve its goal, this could make life extremely difficult for many in the crypto industry and force many companies to move offshore.
Despite these challenges, Ranga remains optimistic about the future of cryptocurrencies: “While the real economic utility of cryptocurrencies remains uncertain, we could yet see another bull run with the next halving event approaching.”
This optimism is shared by Puai Wichman, founder and CEO of Ora Partners, a company that helps high-net-worth individuals and their families protect both their personal and corporate wealth.
Wichman sees cryptocurrencies as a hard asset with a finite supply — similar to precious resources like gold. As such, he believes that the value of cryptocurrencies should outperform fiat currencies because of the limits on how much can be produced.
However, Wichman also cautioned about the regulatory uncertainties surrounding cryptocurrencies.
“Investors need to be aware that since rules, regulations and the application of taxes on cryptocurrencies are yet to be finalized, this is an area that ought to be approached with caution, and expert advice is definitely a prerequisite,” he warned.
The Future of Finance: A New Era of Cryptocurrencies
As we stand at the precipice of a new financial era, the role of cryptocurrencies is becoming increasingly significant.
You see, the recent banking crisis has emphasized the need for alternative financial systems, with cryptocurrencies emerging as a potential solution.
Indeed, my colleague Chris Coney is using DeFi to target yield hunting opportunities in any market.
As many investors move their capital from banks into money market accounts in hopes of 4%-5% yield, Chris is earning 18% from one of his most conservative, low risk exposure positions.
I suggest you learn more about this strategy by watching his Superyield Conference. But you’ll have to do it now. We’re taking the video offline tonight.
Still, the path to those new opportunities will not always be easy or straightforward.
That’s why I asked Stefan Rust — CEO of Truflation and the former CEO of Bitcoin.com — to join me to provide a unique perspective on the future of cryptocurrencies.
He suggests that as the U.S. dollar’s global dominance wanes, cryptos like Bitcoin could become an increasingly attractive alternative. With its permissionless, immutable nature, Rust emphasizes that Bitcoin offers a level of financial control that traditional fiat currencies simply can’t match.
However, like Ranga and Wichman, Rust also acknowledges the challenges that cryptocurrencies face, such as volatility and regulatory uncertainty. He also points to technical barriers that may prevent users with less technological know-how from fully engaging with cryptocurrencies.
Despite these challenges, Rust’s insights point to a future where cryptocurrencies could play a more significant role in the global economy. This shift could be accelerated by the increasing adoption of blockchain technology and the growing acceptance of cryptocurrencies as a legitimate form of wealth.
Finally, let’s conclude this brief foray into the future of crypto with these wise words from Stefan Rust:
“Bitcoin is an alternative that is permissionless, immutable and only going in one direction. In simple terms, it’s a hedge against the dollar’s weakening grip on global power. Anyone who believes this narrative would be a fool not to hold Bitcoin.”
Whether you embrace cryptocurrencies as a new form of wealth or resist this change, one thing is true: In this ever-evolving financial landscape, the only constant is change.
And cryptocurrencies are leading the charge.
Best,
Jurica