Coronavirus Has Revealed ‘Holes Within Traditional Financial Systems’—And Demand For Bitcoin Is Suddenly ‘Surging’

The coronavirus pandemic and subsequent lockdowns to contain the disease have created an unprecedented economic scenario.

Central banks around the world, led by the U.S. Federal Reserve, have pumped unprecedented stimulus measures into the system in the wake of the coronavirus pandemic, far outpacing the response to the 2008 global financial crisis and adding trillions of dollars to central bank balance sheets.

Now, as the world braces for the economic fallout from widespread coronavirus lockdowns, a rising hedge fund star has warned of "holes within traditional financial systems" and backed a bitcoin brokerage that has seen its clients double each month since January.

"The evolution of finance is only happening faster in the wake of the current global economic crisis, which has illuminated holes within traditional financial systems that can potentially be filled by bitcoin," said 30-year-old Olaf Carlson-Wee, multimillionaire founder of hedge fund Polychain Capital.

Polychain Capital this week led a $5.7 million funding round in San Francisco-based River Financial, a startup bitcoin brokerage and financial services firm that has seen its client base double every month this year, fueled by a new wave of cryptocurrency investors who are buying "significant" amounts of bitcoin to "hedge against potential inflation caused by the Fed's ongoing quantitative easing."

These bitcoin buyers, who are predominantly over the age of 55, have been called "bitcoin boomers" by River and could signal the notoriously young bitcoin and crypto space is beginning to mature.

Bitcoin boomers accounted for 77% of River’s volume growth since March.

Meanwhile, River's average monthly volume of bitcoin transactions has increased 80% this year, the company said, echoing other bitcoin and cryptocurrency exchanges that have reported soaring volumes in recent months.

"The surging activity we've seen since the beginning of 2020 has been in part inspired by the Federal Reserve's unprecedented monetary intervention," said River chief executive and co-founder Alex Leishman, who added growing interest in bitcoin from "seasoned macro investors" like Paul Tudor Jones, Dan Tapiero and Raoul Pal is legitimizing bitcoin "within the mainstream finance community."

Congress has allocated almost $3 trillion for coronavirus-related economic aid and the Fed has pumped trillions of dollars into the U.S. economy to soften the fallout from the coronavirus pandemic—with more on the way.

"We at the Fed need to keep our foot on the gas until we are really sure we are through this, and that’s our intention," Fed chair Jerome Powell told the U.S. House of Representatives Financial Services Committee on Wednesday, adding Congress "may find that there’s more for [it] to do as well."

Alongside high-profile investors who have taken an interest in bitcoin, the traditional financial industry has also been slowly coming around to cryptocurrencies.

JPMorgan, which has been described as bitcoin's "biggest enemy" and whose chief executive once called bitcoin a "fraud," has recently added its first crypto exchange customers.

Wall Streets biggest banks are very much playing catch up, however.

River, which eschews so-called altcoins in favor of the original cryptocurrency, has recently rolled out a private client service for investors who want to purchase up to $250 million worth of bitcoin.

"We believe that bitcoin will play a key role in the world's monetary systems over the coming years, and incumbent institutions are not culturally or technologically prepared for this future," said Andrew Benson, River co-founder and chief operating officer.

The bitcoin price is up around 30% so far this year.

While its recent rally has faultered, some have predicted it will end 2020 as one of the year's best performing assets.