The last of the major financial and economic crises occurred in 2008. However, its echoes continue to haunt the global economy. Although governments have made certain conclusions, they are in no hurry to revise the rules by which the world economy and finances operate.
The crisis of 2008 is instructive in many ways. It all started with the mortgage market and ended in the largest recession in history. The Fed (Federal Reserve System) and other central banks tried to save the situation and loosen monetary policy by lowering rates and launching programs to buy securities from commercial banks, which contributed to a partial recovery. However, the measures taken have led to the appearance of financial bubbles in different markets, which also had its negative consequences in the future.
An economic downfall is always serious. The effects of the crisis were very widespread. And to understand them, suffice it to note that more than 8 million people in the U.S. lost their jobs. More than two million companies found themselves on the brink of bankruptcy or ceased to exist. And that's not the half of the story. The mortgage and economic crisis have caused Americans to lose their homes as well as their faith in the existing system.
Many economic indicators, despite the diligent work of the Fed and other central banks, could not reach their pre-crisis levels for long enough and this despite the fact that banks were again taking risks by providing loans, and the Fed encouraged them to do so. That is, the system was again pushing itself to the brink of survival by its own actions. Instead of making global changes, central banks tried to 'put out the fires’, or in other words took spot measures aimed not at preventing similar events in the future, but at getting rid of the consequences of what had already happened.
According to regulators, the global financial system has already undergone significant changes since 2008. Serious safety measures have been taken (e.g. measures aimed at improving credit scoring) to minimize the risks of such crises recurring in the future. However, none of the steps taken guarantee that we won't end up where we were in 2007 in the near future. That is, when the situation was already beginning to spiral out of control, and the bankruptcy of one of the largest banks in the United States triggered a veritable financial tsunami.
In fact, there is a close correlation between the events of 2008-2009 and the emergence of the first cryptocurrency. Satoshi Nakamoto believed that cryptocurrency is not just a way of encrypted information transfer. It is a kind of revolution in the world of finance, the emergence of independent money, the rate of which would not be influenced by central banks.
In part, that makes sense. Today any central bank, even with democratic market regulation, can bring down the exchange rate of its fiat currency. All it takes is to lower rates or start buying securities from commercial banks, increasing the supply of fiat money.
And making the currency cheaper is good for the economy on the one hand. It encourages people to spend more money.It encourages business activity. However, inflation reduces consumer income. With each turn of inflation, a household can afford fewer and fewer goods and services for the same amount.
Professional financial market participants save themselves by investing their money in securities and other assets. In times of crisis, many of them got even richer, while ordinary consumers only lost.
Therefore, the emergence of bitcoin was no accident. Despite the fact that almost nobody took the idea of the first cryptocurrency seriously and for a long time it was mainly used by geeks and enthusiasts, closer to the end of the 2010s, the situation has dramatically changed.
Cryptocurrency became a full-fledged participant in the portfolios of many experienced financial market participants. And in the early 2020s, it attracted the attention of the world's leading entrepreneurs, such as Elon Musk, for example.
As long as bitcoin has been in the shadow of fiat currencies as well as other assets, few people have thought about its attractiveness. Although all of this has been described in the project's White Paper from the very beginning. And the first thing to think about is the limited issuance. The maximum amount of BTC cannot exceed 21 million units. And this fact itself makes bitcoin a more attractive way to save, because in the long term limited emission will increase demand for the cryptocurrency and, consequently, its value.
Limiting the maximum emission in the long run contributes to the fact that demand will in any case exceed supply. This kind of inflationary model contributes to an increase in the price of bitcoin relative to any existing currency.
And that's not the only reason cryptocurrencies are attractive.
The ability to conduct fast peer-to-peer transactions (transactions between users directly), bypassing banks or other intermediaries. Outside the blockchain environment, it is possible to transfer money to another person, if at a distance, either through a bank or through electronic payment systems (with intermediaries in both cases).
They are one of the driving forces behind the progress of this industry. Every now and then there are reports in the press about how someone bought cryptocurrency cheaply and then sold it dearly. All this affects people in much the same way as stories from those who won in the casino or the lottery.
There is a well-known case where a user bought a pizza for 10,000 bitcoins. This story traveled around the world and became one of the drivers of interest in BTC, as well as other coins. Potential depositors imagine how much they could buy today for such an amount and buy bitcoins in the expectation that their price will grow ten times more.
By the way, many analysts predict the next round of growth very soon. If some time ago the price of $20,000 per 1 BTC puzzled many people and seemed fantastic, today's forecasts of $150,000 do not seem to be out of the ordinary. On the contrary, many expect that this figure will not become a limit.
And all this against the background of the fact that the world economy is under dire pressure of the pandemic and its consequences, and central banks of the largest countries continue to keep key rates at 0%.
Despite the boom in cryptocurrencies in the past few years, this field is still considered relatively young. Its capitalization reaches only a few trillion dollars. It sounds quite weighty, but compared to the stock markets, cryptocurrencies have room to develop and grow.
In short, trust in cryptocurrencies is growing for the following reasons:
Before investing in a particular token, it is necessary to clearly understand which drivers can lead to an increase or decrease in rates. They can be divided into two groups:
Let's consider both factors in more detail.
As in the evaluation of shares on the stock market, a potential buyer of a cryptocurrency is recommended to pay attention to the project. First of all, read the latest news and how the team works and what they plan to do in the future.
If the news feed of the project is empty, it indicates that it is unlikely that in the near future you can expect a rise in the value of the coin. In addition, it makes one think that the development of the project may be on hold.
Any positive news about the project can be a catalyst for the growth of the cryptocurrency:
In addition, experienced depositors pay attention to the mood in the community. In the world of fiat money, the average consumer has no influence on the issuer. In the cryptocurrency community, many projects are built on the principle of voting, and teams take into account the wishes of users. Community sentiment can play a large role in shaping the market rate of a token.
Security issues also have an important impact on rate formation. The more secure a project is in terms of protecting users and their tokens, the greater the interest in it.
There is a whole list of things that can affect the value of a particular cryptocurrency:
Despite all the promise of the technology, not all countries positively assess the impact of cryptocurrency on the economy. Therefore, in some states, settlements with digital assets are restricted. For example, in Russia from 2021, users can own cryptocurrency. However, it is not allowed to pay for goods or services.
China is actively cracking down on bitcoin. In this country, new prohibitive measures aimed at protecting local fiat currency keep appearing. For example, in 2021, the Celestial Empire banned mining. However, this had no effect on the functioning of blockchains, as local miners had already moved their farms to other regions before that.
Recently, news about bans has no longer had such a negative impact on the cryptocurrency market as before. The fact is that depositors have gradually adapted to them and see that not a single negative law has led to the fact that the technology stopped working and cryptocurrencies went out of circulation. On the contrary, it is attracting more and more attention from potential users of digital money.
Is it even possible to ban, for example, bitcoin and make its blockchain no longer work? In theory, yes, but practice shows that distributed ledger technology can handle almost any prohibition. The blockchain has no single central server. Accordingly, you can't just walk in and take away equipment to shut down the entire network.
Seeing this, many governments are striving not to ban, but to begin to control the circulation of cryptocurrency. For example, bitcoin and altcoins received the status of digital money in a number of states. In other countries, they have become electronic assets. Gradually, tax legislation is being applied to them.
Central banks vs. bitcoin: what the world's largest bankers are afraid of
Central banks are much less enthusiastic about bitcoin and any digital money. This is true for both the Russian Federation and the U.S., for example. More and more often, you hear the heads of central banks saying that digital currencies are dangerous, and they can cause harm. How is this expressed?
One of the mandates of the central bank is to grow the economy. At the moment, Central Bank of Russia has the tools to stimulate economic progress in difficult situations and to keep inflation in check when necessary.
The crisis of 2008 is exactly what forced many of the largest central banks to start using such tools. Rates were gradually lowered, and quantitative easing programs were introduced. All of this allowed the Central Bank to stimulate the economy and have a positive effect on growth.
The reduction of interest rates to low levels, including 0, leads to the fact that deposits become unprofitable, inflation begins to rise, and the consumer is as if squeezed in this vise. It is not profitable for him to keep fiat money in the bank, and it pushes him to spend more.
Low interest rates are also an opportunity to issue loans. All this also leads to increased business activity.
Digital currencies deprive the Central Bank of its main tool. That is, for central banks, the risks from cryptocurrencies lie much deeper than you might imagine at first glance. In fact, they are losing their main tool and in the long run will not be able to manage economic growth the way they did in the past.
How financial crises affect the value of cryptocurrency: prospects
So, with the advent of new digital money, the situation has changed. As bitcoin and altcoins become more popular, more and more professional financial market participants pay attention to them. This means that in future financial and economic crises, the role of tokens will be more significant. Interest in them will increase, as digital coins will become one of the safe-haven assets for depositors.
Most likely, during recessions, bitcoins and altcoins will become one of the risk hedging (insurance) instruments. That is, they will share the role of a refuge with real gold and other precious metals.
In terms of economic stability times, cryptocurrencies are likely to remain attractive. Tokens are not only a relatively safe asset. It is also a technology whose development is of interest to a growing number of people.
There are several reasons why investing in bitcoin or altcoins presents certain prospects for users. Here are some of them:
Despite the large number of advantages, there are certain risks of investing.
Therefore, the main task in this case is to be able to determine how promising this or that project is, as well as try to understand whether the team really fulfills its obligations or not.
The risks associated with buying tokens can be significantly reduced by the right choice of platform.
The platform offers its clients a simple and convenient interface for buying bitcoin and over 600 altcoins. All this is made possible by a strategic partnership between Broex and Binance. Users of Broex.io can send a request to the administration to add new coins available on the advanced Binance platform.
In addition to transactions to buy and sell digital currency, there are five options available on Broex to invest in ready strategies. And some of them are designed for beginners. These strategies have pre-defined tokens that will be bought for the portfolio. There are also options for experienced investors, where they will be able to choose digital assets on their own.
Broex is registered in the European Union and has a license for financial operations. This shows that the platform is reliable. For the consumer, the fact that Broex is a legal entity is an additional guarantee and protection.
Security when working with cryptocurrency is the primary task of the platform's administration. Therefore, tokens are stored here on servers disconnected from the Internet. During the operation of the platform, which is several years, there have been no cases of losing tokens due to hacker attacks.
As for the fiat currency, it is on a separate loop. There is no access to the administration, which also indicates a high level of security.
Broex uses all the advanced technology that allows the platform to provide quality services with minimal commissions. So if you want to buy tokens during the financial crisis or just to build a portfolio, you will be offered the best conditions and the highest level of security.
The pluses of the site include: