In recent days, UNIVERSITY OF OXFORD has published 2 researches on its website titled “Digital Finance and Crises” and “How is the Market for Cryptocurrencies Affected by Coronavirus and Why Should We Care?”.
In the publication published by Hadar Jabotinsky and Roee Sarel on the cryptocurreny market and covid-19, we can see two views and arguments:
“On the one hand, a salient advantage of cryptocurrencies lies in their decentralization: as the registration of transactions does not involve any central authority, investors who lose trust in governments and banks may decide to direct their capital into crypto, hoping that automation and accessibility of tokens (from anywhere in the world) will secure their funds. This seems particularly plausible, as many studies find zero (or weak) correlations between the cryptomarket and stock markets, so that investors may believe that cryptocurrencies can serve as a safe haven.”
“On the other hand, correlation between the markets might emerge during a crisis, so that cryptocurrencies will cease to be a viable alternative. Moreover, information asymmetries may make it attractive to engage in ‘pump-and-dump’ schemes, where sophisticated investors lure uninformed investors into the cryptomarket by creating an artificial demand for tokens and then swiftly selling their tokens, leaving the uninformed investors with a loss.”
However, UNIVERSITY OF OXFORD has come up with interesting and important insights in this research to help understand investors’ behavior in times of crisis.
The research included an analysis of the market ceiling and the volume of trafficking in the top 100 cryptocurrencies, how correlate with the prevalence of the virus and in general with the number of new infections and deaths.
As a result, each new case of COVID-19 has led to a greater influx of money into the cryptocurrency market, increasing its value.
“However, the relationship between the spread of the virus and cryptocurrencies has a U-Inverse shape, ie initially more Covid-19 cases led to higher investments in the cryptomarket, but there was a tipping point after which the effect reversed.”
As part of this research, the University of Oxford adds that it should also be noted that the correlation between crypto and stock markets is obvious and regulators should take crypto markets seriously, as this may be of systemic importance.
In a second publication by Ross P. Buckley, Andrew M. Dahdal, Douglas W. Arner, Julia Walker, Dirk A. Zetzsche, Janos N. Barberis, scientists looked at digital money and the current crisis.
The University acknowledges the importance and considers digital money as an innovation that can effectively facilitate policy calibration at the macro level and also provide measures to mitigate crises at the micro level.
As part of the basic strategies for coping with the crisis, the university sees these points about digital money:
- leveraging digital finance and payments to reduce human-to-human contact, while organizing support for the elderly and other digitally excluded people who would normally use physical channels;
- directing financial resources to digital infrastructure and connectivity to support all other aspects of society and the economy, including, especially, the online facilitation of education and widespread work-from-home policies
The expert team also adds that digital financial services are today a much stronger policy tool than in 2008 during the economic crisis.
Experts continue to write “The digital nature of the real economy is presently also far more receptive and responsive to stimulus policies implemented across digital financial channels. While the Global Financial Crisis revealed to policymakers the strategies to pursue in response to economic crisis, the legacy of this pandemic may well be the (digital) means by which such policies can be rolled out.”
The findings of this research are:
- Crowdfunding platforms, have been inundated by communal financial support for individuals, healthcare workers, sports clubs and hospitals.
- Digital and contactless payment technologies have kept people safe and facilitate services in a global lockdown.
- Insurtech platforms have provided health and financial risk alleviation for those facing the uncertainty of COVID-19 induced illnesses.
- The lifelines that are international remittances have been maintained (albeit reduced) by online means (with many providers waiving transfer fees).
One of conclusion is the recognition that the use of digital finance in the present circumstances has demonstrated how inevitable these innovations are for society. The University also recognizes that digital financial platforms and their implementation will require concentration and the necessary laws, but such measures are necessary for the resilience of macroeconomics.
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