As the price of gold plummets, investors turn to the various crypto-currencies. Is the crypto-money on its way to becoming a reference currency?
Gold is falling, with more and more risky investments and government bond interest rates weighing heavily on the gold price. The latest announcements about potential vaccines against Covid-19 have aroused hope among investors, with many risky investments (shares, etc…).
“With nominal bond yields being kept artificially low by central banks, increased economic activity will not translate into higher real yields,” says Jeroen Blokland, portfolio manager at Robeco.
The value of gold could also benefit from a return of inflation, as expert Jo Blokland explains: “With bond yields so low and the duration of bonds so high, investors will look for alternatives to diversify their portfolios. Until very recently, the allocation of gold in multi-asset mutual funds was constantly increasing. But that doesn’t take away from the fact that gold is unlikely to suffer the same fate as it did at the beginning of the year“.
At the same time, for the last twelve months, Bitcoin, the main crypto money, boasts extreme stability and shows a variation of +0.7%. This diagnosis is also confirmed with the other crypto-currencies, with transactions increasing by almost 20% in the first months of the global pandemic.
This phenomenon can be explained in part by the containment imposed in several countries around the world, pushing investors to stay at home and thus making them more apt to experiment with this new currency that is all the rage.
The question arises as to whether this trend will continue with the announcement of the second wave of containment. Indeed, crypto-currencies are not subject to the hard laws of the market and economic indicators, unlike standard currencies. On the contrary, they enjoy freedom in the face of economic conditions and are completely independent of corporate speculation.
Bitcoin, with more than 300,000 transactions per day, is the most widely used currency of all crypto-currencies and like them, it has a fast recovery capacity. In addition, initiatives accelerating its development are multiplying, such as Facebook’s libra.
The number of cryptocurrency users is estimated at 25 million, with about 50 million wallets. In France, 6% of French people say they have invested in crypto-money. The problem that arises for these crypto-currencies is that of user confidence. Indeed, the main brake on the expansion of these currencies is the public’s mistrust of these means of payment. The major technology groups tend to support certain crypto-currencies, thus increasing their use.
The use of these crypto-currencies is different in Africa, a continent where a majority of people do not have bank accounts, the crypto-currency is used for everyday purchases. This is not the case in Europe, where this method of payment is essentially limited to large transactions.
It should also be taken into account that 114 crypto-trading sites are considered illegal or dangerous and placed on the blacklist of the AMF (the French financial markets authority). Faced with this obstacle to the development of these crypto-currencies, consumers must be doubly cautious.
The growth of users of crypto-currency depends on many variables, but double-digit growth can nevertheless be expected in the coming years, as the potential of the blockchain with its various applications becomes apparent. And while gold is struggling to recover, crypto-money is shining in spite of the health crisis and promises to become a reference value for investors worldwide.
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