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Friday, November 27, 2020

Cryptocurrency Binge In The Times Of Coronavirus

The beginning of 2020 saw a sharp increase in the trading of cryptocurrency such as Bitcoin and Ethereum among others. It jumped to a new high in February and plateaued there as Coronavirus crisis soared from March.

cryptocurrency binge

Who is investing in Bitcoins?

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Cornerstone Advisors in a new study found that 15 percent of American adults currently own some form of cryptocurrency and more than half of these investors are first-timers who invested during the initial six months of this year.

On average, these new investors spent roughly $4000 per person in cryptocurrencies which adds up to approximately $67.5 billion. American investors who invested in cryptocurrencies prior to 2020  have self-reported that their assets have an estimate of $111 billion, or approximately $7000 per person.

Bitcoin is the cryptocurrency that was invented back in 2008 by an unnamed person or group of people using the name Satoshi Nakamoto. In 2009 its implementation was issued as an open-source software.

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Ethereum is the second-largest cryptocurrency platform in order of market capitalization just after Bitcoin. It is a decentralized open-source blockchain with smart contract functionality. Ether is the cryptocurrency generated by Ethereum miners as a reward for computations performed to secure the blockchain.

Euromoney describes blockchain as “a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.”

Bitcoin Buyers Demographics

Who is causing the sharp increase in the Bitcoin investments in this time of crisis?

cryptocurrency

Well educated, high-income men

It has been observed that 8 out of 10 cryptocurrency buyers in 2020 have been men who have an average income of around $130,000. Four out of ten hold a Master’s degree and 70% of them have a Bachelor’s.

Millennials and Gen Xers

Study shows that 57% of the buyers of cryptocurrencies in 2020 to be millennials (26-40 years old) and 30% of them are Gen Xers (41-55 years old). Overall, 21% of Gen Xers and 27% of Millenials have assets in the form of cryptocurrencies in comparison to 3% Baby Boomers and 7% Gen Zers.

BoA Customers

Bank of America is the primary bank for roughly 21% cryptocurrency buyers. It has been observed that 47% of the consumers that went on this Bitcoin binge in the time of the Coronavirus crisis are customers of BoA. One would believe that Bitcoin investors would be customers of digital banks, but a paltry 6% of them call digital banks their primary bank.

The Benefit of Bitcoin

It has been noted that 44% of the American population has already invested in cryptocurrencies such as Bitcoin. Others have reported better financial health conditions since the beginning of the Coronavirus crisis, though there might be other variables that may affect the equation.

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First Time Investors

Demographically, though there is a similarity between the first time investors and the groups that invested before this period, the significant difference is that they are bringing about a change in the financial institutions they do business with.

Half of the first-timers of 2020 shifted their primary banking in the past 6 months – one-third of whom did so in the last 3 months alone.

The Apple effect

It is interesting to note that even though Apple Card holders comprise only 5% of all the credit card holders, 47% of them have invested in some form of cryptocurrency – two-thirds of whom have invested in 2020.

The next wave of investors

From a demographic perspective, the next wave of investors in Bitcoin comprising 11% of Americans are different from the current set of consumers. They are :

Women

Currently, only 22% of the consumers of cryptocurrency are women. The change in investors will see this figure rise to 35% of the total.

Minorities

Hispanic and African-American consumers comprise 28% of all Americans and 23% of current consumers come from these minority backgrounds. It is anticipated that the next 12 months will see an increase in investment from these ethnics groups to raise the percentage to 37%.

Younger and older

Currently, 6% of Gen Zers and Baby Boomers are cryptocurrency investors. In the next few months, the figures are predicted to increase to 17% Gen Zers and 11% Baby Boomers.

Less-educated 

Only 18% of the current crypto investors do not hold an Associate’s college degree. This number is expected to rise to 36% with the next wave of investments.

One area of concern about the next wave of crypto investors is that just 30% consider themselves to be well educated in handling finances in comparison to 54% of investors already owning these assets.

Banks and Crypto opportunity

The spike in the cryptocurrency investment has been a boon for Square. Revenue generated from Bitcoin for its Cash App for the first quarter of 2020 was $306 million in comparison to $65million generated in the first quarter of 2019. Quite predictably, reports show that Paypal plans to use Venmo and PayPal apps to offer consumers to purchase cryptocurrencies.

While many banks do not allow their customers to buy cryptocurrencies using their cards, the rise in the crypto investments leads to the question of whether or not the banks should provide more crypto-related services altogether.

cryptocurrency friendly

While some banks are still in the decision making phase, a few have taken a head start over others. A “crypto friendliness” score is provided by Moon Banking for banks and USAA and Ally Bank have taken the lead. 

All banks, especially credit unions and community banks should consider providing Bitcoin wallets and other crypto trading services as a way to offer better services to their customers.

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