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How COVID-19 killed cash and what will replace it.

How COVID-19 killed cash and what will repace it.

By Katharine Wooller, Managing Director, Dacxi 

Retail clients are calling time on their long-term love affair with cash, as fintechs fill the void.

The first time I saw a shop in central London declaring itself cashless, it was unusual enough I took a picture on my smart phone and sent it to several friends. Today of course, many retailers nationwide have followed suit.  Cash is seen, frankly, as an irrelevance at this time, aided by a tsunami of payment fintechs.

More recently, in the post COVID-19 reality, the contactless limit for in-store spending is to increase from £30 to £45, as retailers cut the need for physical contact in shops amid the current pandemic. Many of the world’s largest retailers, including Uber, Amazon, eBay, and Starbucks, have gone one step further and indicated they will look to accept crypto payments in the near future.

To the detriment of traditional banking and the financial services  industry, where the pace of innovation has been glacial, it should come as no surprise that as the UK has enjoyed a fintech boom.

Courtesy of policies such as the FCA’s Sandbox, which provided regulatory exemptions to allow tech firms to turbocharge research and development, some embarrassingly small start-ups have been eating the big boys’ lunch! However,  these have been essentially piecemeal incursions on the territory, across a number of dynamic subcategories ripe for disruption, such as crowd-lending, AML/KYC, robo-advice, stress testing, cyber security, and AI.

Covid-19 provides the perfect storm, a once-in-a-generation event, for retail clients to embrace a new dawn.

Katharine Wooller

Katharine Wooller

As the pandemic and subsequent lockdowns have cast a wrecking ball through the markets, there is a real sense that the four horseman of the apocalypse are already saddled up!  For many people in the UK, it is the first time they have seen bare supermarket shelves, and there is a real threat to the perceived social order supported by the precarious relatability of the various systems we have hitherto subscribed to.

Global banking infrastructure is seen as systemically unviable, and confidence in the global financial systems is at an all-time low. 

In my view, there is little doubt we will see a prolonged global recession, and, at the time of writing, current predictions from the Centre for Economics and Business Research (CEBR) are that Britain’s economy will shrink by 15 per cent between April and June in the steepest contraction on record.

Michael Gove has hinted that a new era of austerity is on the horizon because the Government will have to repair the enormous hole that the virus crisis has left in its finances.

With the BoE base rate at a historic low of 0.1%, investors need to find safe and secure way of maximising returns and to think ahead of the curve for the global recession.

Extra ordinary events often create ordinary returns, and there is an unprecedented need to think out of the box, and thus willingness to diversity.  With the switch from cash to crypto being previously limited to millennials, we now see the 40+ age bracket including the “blue chip” digital currencies (Bitcoin, Ethereum, Litecoin) in their investment strategy.

Certainly, recent events support that different assets respond differently, and many crypto currencies, at the time of writing, have recovered faster than traditional asset classes and therefore look comparatively positive for retail investors.   For generations X and boomers, this is coupled with a deep distrust of government’s “printing money” which currently isn’t providing the CPR that the UK economy desperately needs.

Moreover, the traditional “back stop” of UK pension planning for the middle classes, property, looks moribund, as recession, unemployment, and unaffordability push prices down.  A number of crypto exchanges exist to assist retail investors in participating in the market, in an easy and accessible way, some of which have seen record traffic during the pandemic.

Previously the preserve of the manbun sporting skinny trouser wearing niche, there is increasing amounts of mainstream analysis that bitcoin will enjoy a run to $100k in the relatively near future.

Only a small percentage of institutional money being diverted into crypto will have a hyperbolic impact on prices. Higher prices will always attract more money.   As Bitcoin’s dominance continues to rampage (63% of total market cap), there is much talk of this ‘Digital Gold,’ as safe haven.  Many analysts suggest that the forthcoming May bitcoin halving will cause a mini boom.

We are entering unchartered territory, socially and economically, and there is consensus both that the current systems are not fit for purpose, and that previous investment strategies are redundant.  How these pan out in the coming months will, I am sure, be a much-researched topic for generations to come.

Katharine Wooller is Managing Director of Dacxi UK & Eire. Dacxi is a retail crypto exchange which provides analysis of the blue chip crypto assets, which, at the time of writing, have recovered faster than traditional asset classes.

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