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Is Crypto the Solution to Global Issues?

Is crypto a solution to global issues like war, the ongoing pandemic, and inflation?

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Recently, Cabital hosted a discussion between Dr. Guenther Dobrauz, partner and leader at PwC Legal in Switzerland, and the Cabital's Senior Money Laundering Reporting officer, Jonas Narbutas, connecting from Lithuania, moderated by Francesca Tay, the Chief Content Officer fof Bybit. 

We’ve selected some key excerpts from their discussion in this blog post and you can watch the discussion in full here:

Crypto and the Conflict

Francesca: Some people saying that the king of crypto often behaves more like risk on assets such as stocks, and according to investors, during the heightened conflict, Bitcoin's characteristics have increased demand for the crypto asset. It actually helped to outperform some other traditional havens. We're talking about gold being up about 2% while the U.S. ten-year Treasury yields are actually falling about 8% or so in the last week of March. Yet the moves may do little to settle arguments over Bitcoin's safe haven credentials. With Bitcoin being so volatile, Jonas, I'll start the question with you, do you think that it should be considered a safe haven?

Jonas: Well, it's just another way of investment and volatility cannot be avoided in any kind of investment in the news or any conflict or any change in politics, economics, or you name it, can impact price volatility. I guess it'd be that short.

Dr. Guenther: I believe that the future will be decentralised and the rest of the circular, by the way, but I think another thing we can dive into and in my view, I do believe that Bitcoin and other cryptocurrencies do have an effect that will, in the long run, be affecting the holders of it. Real questions are just how long and when, right? So there is also the inflation we are seeing on a daily basis there. So I think if you're betting on just putting everything in there, I wouldn't do that, but in the long run, as it has to be.

Francesca: The primary benefits for cryptocurrencies is that it makes kind of cross-border financial transactions much faster, cheaper and definitely more secure. So in the wake of recent conflict, some U.S. congressmen and women have been saying that Russia could use crypto to evade economic sanctions imposed by the West. Is that true and how does that actually work?

Jonas: So, at least from the articles and news that I have heard the last few weeks, these are the same people that are against crypto in general. So, of course, they will use any setting for them to support their existing views about crypto, but, again, everyone needs to be aware of such kind of possibilities and analyse, investigate the conflict and escalate to regulators internally or to service providers, such as Chainalysis to flag certain wallets or platforms as unfriendly, reporting activity to regulators or even decline payments if suspicion is detected, right?

Also blockchain analytics software such as Chainalysis, that we here at Cabital are using, can mitigate this risk. It allows Cabital and other platforms to clearly identify transactional risks, which is accomplished through comprehensive interfaces and automated funnel mapping that emanate even beyond the immediate counterparties that our customers are transacting with. So compared these analytics with additional wire transfers where financial institutions are able to only identify the immediate senders and recipients of funds, it is clear that the cryptocurrency transactions are actually more transparent and traceable.

Dr. Guenther: Well, but it's simply KYC and the AML apply, right? So you have to check everybody that is behind it. Obviously, I would assume that if it comes to strategically plan it would be done in a very smart way, but this is what the financial intermediaries are told to expect.

Crypto and Inflation

Francesca: Bitcoin historically, is said to be a hedge against inflation. We're seeing the United States, for example, inflation being over 7% at record highs, and we are seeing very similar rates of inflation in Europe and, I guess, several other parts of the world, yet Bitcoin has not really, I guess, matched up in terms of performance. Why do you think this is the case and is Bitcoin really, really a hedge against inflation, Dr. Guenther?

Dr. Guenther: I do think it is the question is the timeline you apply, right? So, I have the lucky position to live in Switzerland, to have a good income and yes, I can allocate some money to crypto and I've been doing so for some years, and yes, there is this idea that is in inflation protection. Is it on the long run? I don't know. There are so many factors going on. I personally think, yes, it is, but whether it is, we have this scenario now going on between Russia and Ukraine, which is obviously heavily affecting everybody. There's a lot of countries getting into debt and we still don't have a consensus on whether it's going to survive or not. If you ask me personally, yes, I do believe it is. Will it be right or not? I don't know.

Jonas: As the world is still running on traditional currency, so we all do depend on this traditional finance and have to cope with the high inflation rates, especially in the face of military conflicts, this potential will have impact going forward as well, right? When the world will agree on how to deal with or use crypto, regulate, ban as some countries did or in what means to use it, then this could be coped with in a broader sense, I would say.

Francesca: El Salvador was the very first country to legalize Bitcoin. Yet the world is still in a watch and see mode to see the impact or I guess measurable results coming out from this move. Only about 15% or so of businesses have onboarded Bitcoin payment. In fact, I think Bitcoin is really far off from where the country was when it was "buying the dip," if I may say so. So, do you see any risk in countries adopting Bitcoin as a legal tender, and on the other hand, what really are the benefits of it?

Jonas: I would be more conservative on this and if we would look around the world, we would see that major economies or major countries are not considering to implement it as a legal tender, at least not just yet. The countries are analyzing, going through regulations and setting up the framework first to actually be able to go this way, let's say, in this way, but not vice versa, that let's let's implement and see how it goes.

The benefit of it is for people having one other tool to actually invest in, store value of currency, which is not depending on governments and central banks to avoid currency value decrease for inflation.

Dr. Guenther: Well, I think it was a bit of a surprising move, but in a good way. If you see countries moving in there. Now, obviously, we need to get the real countries and not saying it's not a real country, but there are important countries from an economic perspective, to do that, and if one of those would follow suit, then I think the impact would be major. Am I hoping for it? Yes, I would like it. Will it happen? Again, I think we'll have to wait and see a little bit.

Crypto and the Pandemic

Francesca: Countries are just beginning to open up and some are still seeing a surge in cases. So many people have lost jobs even during this pandemic, while economies were hit. So I would like to talk about crypto in the area of income generation, if we could. Jonas, how can crypto help people earn money? Any ways to make passive income from it?

Jonas: Yes, I might be biased for this question, but with the traditional financial institutions, very low rates of returns when adjusted for inflation from the investments that we control or conduct, then such platforms as Cabital are becoming bigger players in the market and can provide solutions for the investors, for people looking to earn money and diversify their portfolios or receive higher returns. So passive income can be a solution in such high inflation times, and with our increasing options of fiat currencies, more customers from different jurisdiction can actually enjoy them.

Dr. Guenther: Well, again, I would add, we are still at the beginning of this journey. So, originally, it was a buy and hold kind of situation. People really believing in the asset class, buying it and just holding it and going through everything, but ultimately upright. Now, I think this has then developed and is taking, obviously, has become a super interesting area. We are seeing funds in also more traditional way, but also those kind of signals they're using and so forth. So kind of everything we know in the classic sphere plus new ways are being played out, and depending on the money you can contribute, I think, the options are just expanding every day.

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