Cryptocurrency, COVID and a US Dollar Hedge: Why is Bitcoin Rallying?

As a skeptic of investments I don't understand, I admit I was slow to warm to the Bitcoin story. But the combination of a persistent neighbor, client and the book Ben Mezrich's "Bitcoin Billionaires" opened my mind to the possibilities of this cryptocurrency.

Bitcoin made its debut in 2009 and has grown exponentially since. As of October 23rd, Bitcoin was valued at a little over $12,900 per coin.¹ The recent news regarding Square investing $50 Billion dollars and Paypal planning on adding Cryptocurrencys to its network resulted in the price of Bitcoin surging this past week.

Cryptocurrency and the blockchain technology has continued to gain popularity over the past decade, and investors are still turning to this alternative market in 2020. As our Federal Government continues to accrue trillion dollar deficits with no end in site, we thought it would make sense to look at alternative investments that could perform well as pressure mounts on the US Dollar.

Bitcoin and COVID-19

Between March 5 and March 12, Bitcoin dropped over $3,600 in price - the biggest plunge this popular cryptocurrency has experienced in over seven years.¹ Feeling some deja vu? As most investors remember, the stock market crash of 2020 also occurred around the same time, beginning on March 9.

Similar to the traditional markets, cryptocurrency likely plummeted in response to investor uncertainty surrounding the coronavirus, as well as the decline and disparities over the price of oil in the Middle East, some experts believe.²

It’s important to note, however, that Bitcoin rebounded fairly quickly, reaching it’s pre-pandemic pricing by the beginning of May.¹ Does this indicate that cryptocurrency may be a safer option for investors during times of financial turmoil? There is no certainty in the answer to that question, but many investors are finding it to be an appealing alternative (or addition) to portfolios based in traditional markets.

Blockchain: What Is It?

Blockchain is described as an incorruptible digital ledger of economic transactions. It can be used to record financial transactions or virtually anything with value. It works as a digital ledger keeping record of all transactions taking place across a peer-to-peer network in real-time.

How Does Blockchain Work?

Imagine the blockchain as a book of records with a countless number of pages. Each page in this book is referred to as a block that can be programmed to record virtually anything. The pages (blocks) are then created one after the other and chained together simultaneously, creating a chain of blocks referred to as the blockchain.

The various blockchain records are maintained on a large network of networks, meaning no single person or entity has control over the records' history. Every time new information is accessed and updated, the changes made are verified and recorded before being encrypted and sealed off completely, unable to be edited again.

Blockchain Use During COVID-19

Blockchain technology has been around for more than a decade, but in light of the recent pandemic, some experts believe it could be making its way into more mainstream uses. From testing the virus to tracing vaccine distribution, blockchain technology may be the answer the pharmaceutical industry needs to address safeguarding records and sharing information across multiple channels - as described in a recent article by Coin Journal.³

Beyond the healthcare industry, government agencies and nonprofits may begin turning toward blockchain technology because of its ability to offer data in a transparent and secure manner. Nonprofits, for instance, may be able to use it to give donors peace of mind in knowing their funds are being directed where they should, and not to a middle man or other shady location.

While cryptocurrency has been compared by experts to buying a brick of gold (due in part to its high price per unit), it’s important to still do your due diligence before making any investments. As a Registered Investment Advisor, we have access to Bitcoin and other crypto currency investments through the Fidelity Investments platform. We will also have access to the first publicly traded crypto currency fund in history when it becomes available in the coming weeks. Please feel free to call me to discuss how this investment may fit within your current asset allocation.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.