By Marcus Swanepoel, CEO of Luno
You’ve heard it said countless times already: 2020 has been a year like no other. The impact of COVID-19 on every aspect of modern day life has been unprecedented. Naturally, global economies and financial systems have been no exception. People have curtailed their spending, the job market is up and down, and there is a general feeling of uncertainty – no matter who you are, or where you are.
But what of 2021? Specifically, where does the happenings of this past year leave our financial system? Our banks, our currencies, our savings and investments are all under the spotlight like never before, with 2021 feeling like it could be a serious inflection point.
Will it bring more of the same, or will unprecedented times require unprecedented measures?
Confidence remains…for now
Despite the economic uncertainty brought about by the events of 2020, the data doesn’t paint as bleak of a picture as you might initially think. In fact, recent research* reveals that as many as 90% of people globally still trust their local high street bank to keep their money safe, only a slight decrease from data in 2019.
Those sentiments extend beyond the high street bank and into the likes of the House of Lords and the Senate. Despite the year being dominated by untried and untested monetary policy – with countries like the UK approaching negative interest rates for the first time – the general public are broadly positive toward their local government: overall, 58% of people are happy with their government’s handling of the economy in 2020, which is actually an increase of 3% from the previous year.
However, while their trust in others remains relatively intact, people’s security – or in this case, insecurity – around their own financial situation has taken an understandable hit, and that’s reflected in consumer spending.
In the UK, for example, there was a 25% decrease in consumer spending from Q1 to Q2. In real-terms, it’s a drop from £340bn at the beginning of the year, down to £254bn just a few months later. This 25% decrease in a half year is out of the ordinary, with consumer spending hitting a low not seen since 2002.
Unfortunately, the situation in the UK is reflected globally, and as such, there is a 13% increase from 2019 to 2020 in the people who view their economy performing ‘poorly’ or ‘very poorly’. This sentiment expands to currency, where 40% of people globally believe their local currency will decrease in value in 2021, with only 29% seeing an increase.
Can 2021 finally be bitcoin’s year?
It feels inevitable that consumer confidence in both the financial system and governments may begin to wane as the economic impact of COVID continues to take its toll, and fiscal policy continues to change to reflect this.
So, where does this leave us? While there is absolutely no quick-fix to eradicate the damage of COVID-19, a couple of key areas can be addressed by governments and financial institutions, particularly when it comes to savings and investments.
Despite aforementioned statistics pointing toward trust in the high street banks, it’s difficult to imagine a scenario where people will be pleased with low or negative interest rates.
While many often turn to stocks or gold as alternative methods of investing their money, these traditional safe-havens have also proven volatile this year, but more importantly, they haven’t proven as effective as one asset in particular: bitcoin.
Recently hitting its all-time high, it has, at the time of writing, outperformed assets like gold, oil, and even the stocks of some of the biggest companies on the planet, including Amazon, Apple, Facebook and Google.
In fact, despite gold increasing its value of just over 22% this year (at the time writing) it’s dwarfed by bitcoin, which has seen its value rise by as much as 170% over the same time period.
As a result, we’re seeing renowned investors such as American philanthropist Paul Tudor Jones, allocate between 1-2% of their portfolio in Bitcoin. He’s not alone either, with businesses such as MicroStrategy has moved 90% of its reserve balance into bitcoin.
While Bitcoin has yet to make its mark as a household product, it has with it momentum, and we predict that 2021 will see the currency proliferate and continue to be brought closer to the mainstream, growing in prominence as a new and alternative savings and investment method in what is looking to be a desperate year for savers.
Does more uncertainty lie ahead?
If 2020 was the year of uncertainty, there is hope that 2021 will bring with it a return to normality. But, amongst the return of the familiar, there is also the opportunity to embrace the new. In what will likely be a difficult financial period for people around the world, there is a clear opportunity for new money to aid consumers where the government and financial institutions can’t – or won’t.