The COVID-19 pandemic has exploded job markets, sent share markets tumbling, pushed economies into freefall and frustrated governments scrambling for recovery plans – but if volatility is such a problem, why are traditionally high-risk cryptocurrencies like Bitcoin doing better than ever?
It’s a question Jonathon Miller, newly appointed managing director of Kraken Australia, has barely had time to ask himself as he helms the transition of the Australian local cryptocurrency exchange he founded, Bit Trade, into its new role as the Australian arm of global cryptocurrency exchange Kraken.
The new venture, which debuted this month, is “the first real entrant from a big, well-supported global platform into the Australian market,” Miller told Information Age.
Yet prospects for cryptocurrencies were looking tenuous in March, when COVID-19 uncertainty saw Bitcoin’s price more than halve in a week during a panicked March selloff; but subsequent months have pushed it to two-year highs as trading volumes set records, more than tripling from April to May.
Reports suggest Coinbase alone received $US1.3b in cryptocurrencies and conventional fiat currencies in one day in March – leading some to badge the current situation as the ‘social media and Bitcoin pandemic’.
Keeping up with the surge has forced Kraken, one of the world’s largest cryptocurrency exchanges, to hire over 200 new home-working staff in March and April – bringing its global total to around 1,000 – to support investors that now see cryptocurrency as being more stable than many world economies.
“We saw a huge amount of growth as a result of this volatility and the flux in general markets,” Miller told Information Age, with many investors looking to cryptocurrency investment for the first time as a complement to increasingly volatile share markets and other conventional investments.
“An overwhelming amount of people came and started knocking on the door, because they are thinking about other places to look for good rates of return and to diversity their investment portfolios.”
The accessibility of cryptocurrency exchanges has made them particularly appealing to individual investors that feel locked out of high-volume share trading, Miller said, noting that Bitcoin in particular “is a most understandable asset” with limited supply that makes it “predictable and provable”.
Stimulus finds a new home
Kraken’s push into Australia predates the pandemic: it bought Bit Trade in January and has spent the intervening months transitioning its customers onto the global Kraken platform.
Its official launch here this week has been greeted with enthusiasm by punters attracted to the exchange’s ability to not only buy and sell Bitcoin, but to also exchange other cryptocurrencies and real-world fiat currencies including the AUD, USD, euro, and pound.
A flurry of first-day investors trading what Miller calls “big numbers” suggests great interest by professional investors that have been calling out opportunities amidst the financial chaos of COVID-19 for months.
“Large scale unemployment and significant financial stress for businesses seem likely, at least for the duration of the lockdown period,” Martin Conlon, head of Australian equities with Schroders, wrote in an analysis that warned of a “severe and sustained impact” to Australia’s equity markets.
“As the crisis continues to unfold, we can see opportunities for active investment management to make a difference in how investors’ portfolios can recover – and even potentially benefit – from changing valuations and stock price movements.”
Cryptocurrencies are likewise benefiting – not only from punters’ renewed interest in alternative investments but their sudden access to relatively large amounts of cash through government measures such as support payments for pensioners, the controversial JobKeeper program, and early access to superannuation funds.
Although they are intended to help Australians cover their costs during a period of high unemployment and fiscal uncertainty, analyses of cryptocurrency markets suggest that many punters are taking their stimulus payments straight to the exchanges.
After $US1,200 stimulus cheques were sent to millions of Americans in April, exchange platform Coinbase noted that the number of $1,200 trades nearly quadrupled overnight and Binance had a similar story.
Stimulus measures have given many Australians quick access to even more cash – and, amidst reports of a contemporaneous surge in online gambling – cryptocurrency seems to have been an attractive option for many.
The global average for trades is around $10,000, Miller said – the same amount as Australians can withdraw, early and tax-free, from their superannuation accounts – although he says this may be “coincidental”.
Yet as cryptocurrency surges and conventional economies continue to falter, could government stimulus funds inadvertently support a crypto revolution that further destabilises the global economy?
Miller isn’t going that far, but he does believe altered risk appetites paint a good picture going forward.
“This is something that not only tech-savvy people are interested in,” he said, “but also something attracting interest from everyday users and sophisticated institutional users.
“It’s not just a fringe story anymore.”
Have you invested in crypto during the pandemic? We’d love to read your comments below!