Following the recent announcement that deposits in Maltese banks in 2019 increased by €90 million, while between January and April this year (during the global pandemic) these deposits increased by a further €900 million, a pertinent question needs to be asked: what is all that money doing? More precisely is it ‘sleeping’ in banks with minimal and ever diminishing returns?
Most people feel more secure knowing that they have sufficient ready-cash for a rainy day. But €900 million in just a few months from a population of 400,000-plus can be judiciously considered a stockpiling of cash.
Let’s remember that these €900 million are on top of further billions which have already ‘slept’ for years in banks locally. Speak to any professional financial planner in any developed country, and that professional will advise that it is best to develop a varied financial portfolio. The millennial-old proverb that you should never put all your eggs in one basket still holds true even today. Hopefully, this is another important lesson that we have seen reaffirmed by the pandemic crisis.
Currently, cash is delivering very poor returns. With bank interests on cash deposits at the lowest level in decades, with a rising inflation rate, the real return on savings accounts is a scenario of losing money every day, month after month.
With the massive amounts of money being created by governments and by central banks, in the name of so-called quantitative easing, the spectre of printing machines destroying the value of money as they did in between the two World Wars, and most recently, in Zimbabwe, is stalking the world’s economies like the sword of Damocles above our heads.
Markets were hit severely by the realisation of how serious the current pandemic could be. Recovery is proving slow – with the exception of crypto currency, which is emerging as a remarkable new asset class. The three leading blue chip cryptos, Bitcoin, Ethereum and Litecoin, rose by 40 per cent last month alone.
This is not surprising when one discovers the interest being shown in digital currencies by significant players such as Amazon, the New York Stock Exchange, Visa, Mastercard, eBay and leading financial institutions.
The global pandemic and recession have been the perfect storm for the world to crave safe new assets. Crypto is firmly out of the niche and into the zeitgeist
There is now a clear appeal of digital currencies to the cashless internet economy, including 24/7 price transparency that is available, cross border usage and third party oversight and controls.
A lot of the dialogue around bitcoin talks about it being a better version of gold, a medium to convey value, being improved by virtue of the technology being quicker, and being cheaper to both store and move. Indeed, a recent transaction of $1.1 billion worth of bitcoin, by Bitfinex, cost just $84.
Unsurprisingly this has caught the imagination of the financial infrastructure industry. Some market commentators postulate a tenfold increase in prices in the next 12 months, based on a few per cent of the global appetite for gold switching to crypto, with Bitcoin being the heir apparent.
For the industry as a whole, it is great news that Bitcoin is now demonstrably decoupled from traditional markets and now has the crucial ‘social proof’ tag that it cannot be altered by external forces, no matter how powerful.
Indeed, google searches for ‘Bitcoin halving’ hit an all-time high in late April, just before Bitcoin’s halving event, which occurred on May 11 and now considered to be a watershed moment for the industry.
Colossal investors, such as Paul Tudor Jones, coming out in praise of Bitcoin as a viable hedge against inflation, saw Bitcoin enter – unexpectedly – stage left to a much broader financial audience.
Dacxi, a digital exchange focusing on educating retail investors, saw some of its busiest weeks in the run-up to Bitcoin’s halving. The addition of the global pandemic and imminent worldwide recession have been the perfect storm for the world to crave safe new assets. Crypto is firmly out of the niche and into the zeitgeist.
Last week, late at night, I wanted to pay an invoice for $300, and then discovered that the company took payments in Bitcoin. Within four minutes I had successfully paid from my crypto wallet – without involving a bank or incurring bank charges.
As digital currencies become the increasingly dominant technology, anyone with an interest in markets and investing would be well placed to educate themselves on this seemingly unstoppable asset class.
Fortunately, there are now organisations that help people to eliminate the mystery and mystique by self-educating themselves and introducing them to this new asset class. With the recent momentum gained from Bitcoin’s halving, crypto is likely to be a broader theme of daily life for decades to come.
The time of leaving millions of euros ‘sleeping’ placidly in banks may soon be over.
David G. Bullock, Independent marketing partner, DACXI
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