TF Blockchain's Jonathan Blanco interviewed Meltem Demirors, CSO of CoinShares, to shed more light on the topic of "Investing in Times of Economic Stress." With Meltem's wealth of knowledge on investing and the world of cryptocurrencies, she provides fundamental information for the understanding of the current situation and prospects for betterment. This article is a follow up that interview and podcast.
The reintroduction of bitcoin and blockchain as digital assets for institutional investment in venture capital firms, and the industrialization of the crypto space, were two of the highlights of the last decade. However, the current global pandemic (Coronavirus/COVID-19) situation has begun to harm the global economy, which has had a correlating negative impact on the value of the bitcoin. This last part comes as a bit of surprise to bitcoin enthusiasts who had prior beliefs that the abstract digital world of cryptocurrency was a safe-haven to the mainstream economic trends.
Incorporating crypto into traditional systems and financial institutions was a major achievement in the technological and economic development of the crypto space. Despite the positive aspects, this incorporation has also exposed bitcoin and other cryptocurrencies to the shifts in the world market and the global economy, due to their new nature as digital assets similar to gold.
This becomes particularly evident in times like now, with the global coronavirus outbreak and its massive impact on oil prices as well as defining the current status of the global economy. These have led to a decline in the price of the bitcoin as well as other assets in the crypto space which could pose a serious threat for individuals with large investments.
Meltem as been a professional investor in the crypto space for over six years and can provide a timeline
of all the saddening events that have occurred so far in the year 2020, and how they may seem absurd to a person who, in her analogy, has been in a coma. She went on to highlight how the most recent happenings (global virus outbreak, global market meltdown, unprecedented economic activities, and national lockdowns) have practically displayed the supposed non-existent relationship between the political and financial institutions. A relationship that is now in the limelight as highly functional.
In a time where the average crypto user, bitcoin owner, or miner would have rejoiced as it being the perfect period for the crypto to shine and experience another boom, the market forces and global economy have had adverse effects on the coin. Bitcoin is experiencing a steady decline, as captured in this analysis report by Investing.com. Meltem provides a breakdown of this situation with statistics of past economic recessions and their recovery times, as well as what it means for the current situation. While her professional stance is optimism for recovery and continuity of the bitcoin’s growth, she explains the immediate impact on two types of investors.
The emotional investor, in Meltem’s explanation, is the one who is likely to buy high and sell low when it comes to making investments. At times of economic stress like this, the fear of "losing it al"l makes these types of investors cave in and liquidate all their assets. On the other hand, disciplined investors are the second group who make investments with more informed decisions. This group has a clear plan and target for their investments, and as a result, make better choices about risk management by having cushions to fall back on in times of stress like the current economic situation. Meltem puts a reminder that investors who think they know everything are usually at risk of losing everything so discipline has to be a general habit to include humility because once this period is over, only those who made smart decisions will enjoy recovery.
A post in CoinTelegraph makes note of this with the main question "Is now the time to invest in Bitcoin?" to which the concluding answer was that bitcoin will hold its value. An article in Nasdaq highlights "3 Stocks to Buy in The Coronavirus-Fueled Market Crash" proving that there are investments still to be made despite the financial meltdown.
Regarding making and maintaining investments amidst all the economic stress in the world, Meltem highlights the fact that every decade has brought about its innovative limelight, and as this era of tech founders is fading out, the new era is likely to belong to systems builders who will be responsible for computing and connectivity development in our digital world. The channel for investments may change, but there will always be something productive to invest in.
This proposed era of the systems builders will be made possible through the foundational provisions of the digital world. Accessible information and the democratization of social media as a leveler that will fulfill three key components of developing informed choices: financial literacy, financial hygiene, and a sense of freedom. These components encourage platforms for discussions and increase the exchange for value in social systems.
In her concluding statement, Meltem advised founders not to give up on their plans as venture capital firms with designated set-out goals will only become more thorough in their process, still, investments will be available. Founders should develop psychological safety to get through periods of economic stress and gather enough resources to capitalize on available opportunities.
Meltem's closing question was,
‘If you spend all this time at home doing only the bare average and take away nothing from this period…Did you do your job?’