Revolut last week announced it is making cryptocurrency available to all its seven million customers, as central banks start injecting unprecedented stimulus into their economies to cushion the damaging effects of the Coronavirus pandemic.
This move from one of Europe’s foremost fintech companies can open the door for many to some of the benefits of digital assets like Bitcoin, at a time when mainstream financial markets suffer a COVID-19-induced downturn.
Certainly, there is reason to be bullish on Bitcoin if one sees it as a hedge against inflation.
The European Central Bank has pledged €750 billion worth of bond-buying with the potential for this figure to increase should it be required. The US Federal Reserve and the Bank of England meanwhile have stated their intention to buy an unlimited amount of debt to finance Coronavirus-related government interventions.
The inflationary threat this poses will be a concern to consumers with savings and investments likely to be devalued.
It is with this consideration that Revolut is now offering cryptocurrency trading to all its users, which it announced in an e-mail to customers last week.
The UK fintech referred to crypto’s origins as an “alternative to real money during the times of quantitative easing and currency devaluation following the 2008 financial crisis,” which is now “happening again right now” following the COVID-19 economic upset.
Having offered support for Bitcoin, Ether and Litecoin to its Premium users since 2017, Revolut was already planning to extend the service to its Standard customers later this year.
However, this has been brought forward in response to recent events, with the banking app wishing to offer all its customers “the opportunity to explore different ways of diversifying”.
Safe havens
Revolut had already shown its intentions in this area with the recent announcement of its plans to allow customers to purchase gold.
The yellow metal is traditionally seen as a diversification tool in investment portfolios and has seen strong upticks in its price across previous crises as the values of equities and bonds decline.
On the other hand, Bitcoin is experiencing its first global financial downturn, having launched only weeks after the collapse of Lehmann Brothers in late 2008. It will be interesting to see what attention and investment it attracts as financial markets face an uncertain period for the foreseeable future.
Often assumed to be a safe-haven asset, it was thought that Bitcoin would be one of the few beneficiaries of a widespread decline in financial markets as more investors sought refuge in the cryptocurrency decentralised from the volatility elsewhere.
This notion is being truly put to the test for the first time.
“The markets are in shock and there are lots of technical elements that are affecting their behavior, so it is way too soon to tell what will prove to be a safe haven,” Ido Sadeh, founder of stablecoin SAGA, tells Finextra.
“We also need to qualify a lot of the expectations that Bitcoin is a safe haven simply because it’s disconnected, which to date have not been fulfilled.”
Lessons from history
However, research from Swiss crypto bank, SEBA suggests there is an historic precedent for Bitcoin bulls who predict it to surge in the months ahead as financial markets tread water.
It seemed initially that cryptocurrency was not as decentralized from mainstream finance as its evangelists would have us believe, with Bitcoin following the same downward trend as the markets.
On March 12th, as the S&P 500 fell to its lowest point in over a year, BTC fell to a 14-month low below $4000 prompting fears of a wipeout.
“When you have crises, people fly to liquidity and sell whatever they can,” Yves Longchamp, SEBA’s head of research, tells Finextra.
“They don’t differentiate between the types of asset, so Bitcoin was caught up in this spiral.”
SEBA’s paper states that it was to be expected for cryptocurrencies initially to suffer more than broader markets due to lacking the intervention of government in the form of helicopter money, rate cuts and so on.
This masks the problems and delays the inevitable, according to SEBA.
The Zug-based bank, which became fully operational in November 2019, offering crypto trading and custody services, states that Bitcoin’s behavior in the last few weeks bears a similarity to that of gold in past crises.
Examining Black Monday in October 1987, the dot-com bubble bursting in 2000 and the global financial crisis in 2008, SEBA finds that gold initially followed the downward trajectory of the S&P 500 before entering a bull market while the S&P continued to struggle.
SEBA therefore believes the short-term correlation between the cryptocurrency and mainstream financial markets will prove the exception rather than the rule in the longer term.
“Just like gold, Bitcoin is also a form of 'outside money', a type of asset that is the liability of nobody and cannot be manipulated by anyone,” the research states.
Whether or not savers and investors will go flocking to Coinbase, Binance or indeed Revolut to buy Bitcoin out of concern for the value of their fiat currency remains to be seen, but there does at least appear to be an historic indicator of why it is plausible.