6 Reasons Why You Should Buy Bitcoin and Stable Coins during the Covid-19 Pandemic
Africans and other developing nations
Recently I asked an accountant what she thought about investing in cryptocurrency in this pandemic where the price of crude oil has plummeted. She gave a reason why it is unlikely for people to buy or sell bitcoin in this period: “They want to stay alive and want this virus to be done with.” Although this reason is valid, it is still important for you to buy bitcoin and stablecoins during this pandemic. And here are six reasons why:
1. Bitcoin is a store of value
We make investments so that our financial resources can appreciate in value over time. Business and financial experts have never failed to underscore the importance of making the right investments. However, the snag with many investments is that either their value appreciates very slowly, or they depreciate over time due to market forces beyond our control. But this is not so with bitcoin or stablecoins.
It is true that the price of bitcoin fluctuates, however, if we factor in inflation and other market forces, we will discover that bitcoin is a better store of value than other forms of investment, even real estate. And here is an illustration to prove this:
A Nigerian businessman buys a land in 2016 for N1 million. In 2016, the dollar to naira exchange rate was $1 to N300; meaning the land was bought for about $3333. Assuming that the land has a 25% growth rate, by 2020, it would have appreciated to N2 million. However, we must factor in inflation which will also affect the exchange rate. As at the time of writing article, $1 = N420. This means the land is worth $4762 in 2020 — a 42.8% increase in value from 2016. A percentage that seems fair. But what if he had invested in bitcoin in 2016?
In 2016, 1 bitcoin was sold for $600 (N180 thousand, at an exchange rate of 300 naira per dollar). So far in 2020, bitcoin has hit an average price of $7000. This means that the bitcoin bought for $600 in 2016 is currently $7000 (N2.94 million, at an exchange rate of 420 naira to the dollar) four years after — more than 1000% increase.
As the world progresses, inflation will hit harder, and currencies (especially those of developing countries) will continue to devalue. This devaluation makes certain investments almost counterproductive. But bitcoin and stablecoins cushion the effect of inflation and currency devaluation to give your investment worth.
2. Stablecoins as a shield from fluctuating exchange rate
A major problem of bitcoin is its instability, volatility. Within hours or days, its price can go so high or so low. This instability creates uncertainty which limits its use as a tender for payments.
Bitcoin and other cryptocurrencies are highly volatile because they aren’t tied to any external assets. Fiat currencies enjoy a level of price stability because they are tethered to external reserves like gold. Also, these currencies are controlled by authorities who are able to regulate their demand and supply so as to maintain stability.
So far, cryptocurrencies aren’t controlled by any government or regulatory body, however, there are cryptocurrencies that are tethered to external reserves like the dollar, gold, silver, etc. These currencies are called stablecoins. A stablecoin is a hybrid of cryptocurrency and fiat currency. With stablecoins, users, on one hand, enjoy the security and privacy of transactions that cryptocurrency offers, and on the other, the stability that comes with fiat currencies. Recently, stablecoins have soared by almost $3 billion because many are capitalizing on its stability and security for investment in this period. Most stablecoins are tethered or denominated in dollars which is the standard reserve currency in the world.
Despite fiat currencies having stability, they are still affected by inflation — a factor which affects their value. Imagine this: a businessman puts N366,000 ($1000; at an exchange rate of 366 naira per dollar) in the bank in March when the coronavirus hit Nigeria. In April, the exchange rate becomes 415 naira per dollar. This means that the new rate has reduced N366,000 which was $1000 in March to $882. The money in the bank experiences no growth — in naira — but its purchasing power is reduced in light of increasing cost of goods and services.
But if the businessman, in March, had purchased a stablecoin (e.g. USDT) of $1000, there will be no reduction in price and the new exchange rate favours him, because instead of N366,000, he gets N415,000 after conversion — a higher purchasing power amid inflation. There are predictions that the price of the naira to the dollar will hit as high as 600 naira. Therefore, it is important to buy bitcoin or stablecoins in anticipation, bearing in mind their cushioning effect on inflation. This is what many Americans are doing with their stimulus checks.
3. Bitcoin and stablecoins encourage savings
Through dollar cost averaging, bitcoin affords the opportunity to invest large financial assets with downsized risks. For instance, if you want to invest $50,000, you can spread it over a period of 50 weeks, investing $1000 per week. You are able to study market movements, and if there is a decline, only a part of your investment would be affected.
Furthermore, investing in bitcoin and stablecoins is far better than other forms of investment like stocks and crude oil. Victor Asemota, a high net-worth investor, in a premonitory tweet quipped: “This period [this pandemic] has shown that ALL equities are risk plus investments. Many will go to zero.” This tweet was made four days before Bloomberg’s big headline: “Oil Plunges Below Zero for First Time in Unprecedented Wipeout.” But this has never been the case with bitcoin. Despite its high volatility, it has never lost 98% in value in one day. The biggest daily drop in bitcoin price in the last seven years was 50%.
Also, there are speculations that due to crude oil crash, governments — particularly, African governments — would withhold financial assets of citizens. So we cannot guarantee the safety of our assets as the pandemic progresses and economies experience further downturn. However, for those who have invested and still invest in the crypto market, the safety of their assets is guaranteed. In addition, cryptocurrency is not limited by social distancing; all it requires is a P2P transaction and an exchange platform.
4. The high ROI of bitcoin
Bitcoin compensates for its volatility with its high ROI. Between the day of Asemota’s tweet and crude oil’s plunge below zero, bitcoin increased by 9.3 percent. Checking the price of bitcoin within the last 30 days, I discovered an increase from $5000 on March 13 to $7000 on April 20. An ROI of 40 percent!
5. The fast recovery rate of bitcoin
In spite of its fluctuations, bitcoin recovers very quickly to its former price, even surpassing it sometimes. It fell from $5000 to $3600 around mid-March, but as at the time of this article — a month after — its price dances around $7000.
6. Businesses are going online
The Covid-19 pandemic has made businesses create an online presence, if they didn’t have one before; or focus more on their online platform, if they did. Social distancing has heightened the need for cashless societies and borderless transactions. And bitcoin offers a veritable option for these. Bitcoin and stablecoins can be integrated as payment methods for businesses. For instance, bitcoin can be used to purchase a domain name for a website, or courses on online education platforms like Daba.school. Charitable donations can also be made with bitcoin especially in this period. For instance, donations can be made to the Blockchain for Covid-19 project — a charitable venture organized by cryptocurrency entrepreneurs in Africa.
Your investments must not experience a downturn because the Covid-19 pandemic. If you’ve tried other forms of investments, and you are having jitters because of the failing economy, why not try bitcoin and/or stablecoins?
Note: do not buy or trade bitcoin and crypto if you do not have the technical skill else you may loose your money .
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6 Reasons Why You Should Buy Bitcoin and Stable Coins during the Covid-19 Pandemic
Very informative. Am saving this.
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