Cryptocurrencies can be a safe haven during uncertainty. Recent war drums surrounding Korea have shown that, with a breakout in the price of Bitcoin to unprecedented levels. However, the flight of capital to digital assets has largely reflected a first-world attitude of safety and trust in current systems. As someone who grew up in a third-world country, I can see the crypto buying habits of this recent spike as an indicator that nothing has gotten too crazy yet. When things really get scary we’ll see an entirely different panic buying frenzy for digital currency that will look not at all the same.
Buying habits still reflect confidence in the status quo
Paradoxically, the way these Bitcoin surges play out reflect trust in the very system they are meant to hedge against. The impulse to buy digital assets to safeguard against the apocalypse largely directs users to centralized exchanges, to buy and hold. While no doubt a vote of no confidence in the current financial system, it’s nevertheless a weak one in that it still lends credence to said system. Users are trusting their banks to make the financial transfers efficiently and honestly, trusting that the exchanges will steward their funds and not go under, and in many cases are trusting the exchange to hold their cryptocurrency for them. Most telling of all, cryptocurrency users are trusting the financial system with all their regular and crucial transactions, and are only using digital assets to leverage a higher standing in fiat currency.
True uncertainty looks different
When more real economic uncertainty kicks in, consumers start to believe much differently. First, the people start to mistrust banks, and pull out their money into a form they can properly control themselves, such as cash. Second, the buy hedges against crisis quietly, peer-to-peer, and for cash. Third, non-banking methods of value transfer become valued as a premium during everyday transactions, as businesses begin to value a cash sale much higher than one paid by card.
Cryptocurrency will be used much differently during a crisis
In the event of a real crisis, or even an event of serious uncertainty in the current system, digital currency will be used in a much different way than at present. To begin with, traders will buy crypto peer-to-peer, likely for cash, and will make absolutely sure that they control their private keys rather than trusting them to a centralized service. More importantly, though, they will become very active in actually using said digital currency for purchases, as they will no longer trust the banks to conduct their transfers. In that environment, a coin with a stable price and wide use will of course win out, with the additional requirements of low fees, fast transfers, and high transaction throughput.
A crisis will give crypto traders a rude awakening
A period of legitimate uncertainty will no doubt catch many Bitcoin holders off guard as they scramble to pull their funds off of exchanges, if they even still can. Peer-to-peer trading will skyrocket, and coins with limited cash-buying options available will likely plummet. Most importantly, though, network congestion issues, long ignored during a relatively stable trading environment, will become several times more severe as users quickly discover how deadly an overtaxed network with high fees is in a real-world situation of everyday economic transactions. During those circumstances, a coin with high network capacity, cheap and fast transactions, high stability, and numerous peer-to-peer cash-buying channels will likely rise to the top rather quickly