on the crypto
"An acceleration of [crypto] adoption driven by the pandemic." This is how Singapore-based DBS Bank describes the current state of digital assets in its quarterly cryptocurrency report released in August. Interestingly, such a remark is made by a respected multinational bank and its chief economist, Taimur Baig.
The post-pandemic
On the subject of cryptocurrencies, Taimur Baig has identified two distinct phases of demand: pre-pandemic and post-pandemic. “Pre-pandemic demand was largely speculative. People saw that bitcoin had spectacular growth and wanted to be a part of that game, ”Baig said in an interview.
“But I think the post-pandemic phase is beyond speculation. […] People are worried about the dollar crisis and are wondering if they should invest in cryptocurrency as well as gold as a safe haven currency ".
DBS is not the only bank to have noticed this trend. Singapore-based digital asset bank Sygnum, which holds a banking license from the Swiss Financial Market Supervisory Authority, echoed this comment.
"Since the outbreak of COVID-19 there has been a growing interest from family offices and individuals who see digital assets as an alternative and a way to protect themselves from a worrying risk of inflation," said Martin Burgherr. , co-head of clients at Sygnum Bank.
Digital gold
Baig, who previously held senior economist roles at the Monetary Authority of Singapore, Deutsche Bank and the International Monetary Fund, enjoys having an overall view of digital currencies and the potential of Central Bank Digital Currency (CBDC).
There has been a steady rise in gold as fixed income yields are approaching zero, Baig said, and those conditions have also caused a "quite convincing return of bitcoin."
It is tempting to look at bitcoin through the forex (FX) lens, as if it were another currency with an exchange rate against the US dollar. But that's wrong, Baig said. "You can't value cryptocurrencies like this," he added.
“Although they may have this image with a system-based circulation, they are not yet tied to the events of a country. So obviously they won't go up and down like the US economy goes up and down. From that point of view, they are more like gold than FX in my view. "
Anchor to the US dollar
For countries experiencing a currency crisis or hyperinflation episode, the peg to the US dollar may bring some short-term credibility, but it doesn't work for all currencies, Baig noted, adding, “If you look at Venezuela or even in Lebanon, which are in the midst of a massive financial crisis, could you, at some point, think about linking your currency to the US dollar instead of a cryptocurrency? ”.
Provided that transactions can be viewed on the blockchain you could do so, Baig said. “As long as we talk about limited circulation currencies, I see some similarities between this type of peg and the peg to the US dollar,” he said.
