If there were ever an indication that the digital age is taking over in finance, it is the state of bank stocks. This year has been an extraordinary one in many respects, and the effects of the pandemic have thrown the banking sector into a quandary as fintech companies have outperformed the traditional players in he banking sector.
BNN Bloomberg’s senior anchor, Jon Erlichman, came to this conclusion after studying stock performance reports for banks, fintechs and the two largest cryptocurrencies, ETH and BTC.
A graph created by CryptoPotato, shows a YTD gain of 217% for ETH, while Wells Fargo bank shows a -58% loss. This is a massive change over a decade: “The stocks of some of the world’s largest banks were on a roll since the previous financial crisis over a decade ago. Bank of America shares had increased approximately ten-fold since 2009 to their highs in February 2020 of about $35,” writes Jordan Lyanchev. He also notes that in the same period, “Citigroup stocks went from $15 to $80, JP Morgan Chase & Co (JPM) from $20 to $140, and Wells Fargo (WFC) surged from $11 to above $50.”
What changed for banks in 2020?
The simplest answer is the Covid-19 pandemic. Even in March banks were seeing a significant slump with some losing 50% of their valuation in a matter of days. Some have regained a little of their former value, but they will still end this year in the red. And it is not just banks; Western Union and American Express have also suffered. Lyanchev notes that Warren Buffett, a major investor, sold all his bank stocks this year.
Visa and Mastercard both took a bit of a hit, but have managed to pull back into the green by small percentages. However, they must be looking at companies like PayPal and Square with a feeling of envy.
PayPal’s stocks (PYPL) started 2020 at $110 and have increased by 94% since then. It did see a collapse to $85 in March, but as we can see, it has completely turned that around. Square’s yearly gains have even seen triple-digit percentages, and it has seen a 178% growth since January 2020. Both of them are now connected with cryptocurrency: Square bought Bitcoin valued at $50 million this year, and PayPal is allowing its US-based customers to buy, sell, and store several digital assets.
The crypto markets
It is undeniable that the cryptocurrency markets also took a hit around March. Today BTC is at $13,000, but it dipped to $3,700 back then. Ethereum, now at $400 dropped to $100. Both have overcome the slump, with Bitcoin in particular being increasingly seen as a safe haven asset in the same way as gold.
Analysts are unsure exactly why Bitcoin has seen a YTD surge of 80%, and whether it can be attributed to more interest from institutional investors, the May halving or large companies investing in it. Ethereum has been riding the wave of the growing trend supporting decentralised finance, as its blockchain operates as the underlying technology behind most DeFi projects. Even though this utility has highlighted some of Etherieum’s weak points, such as high transaction fees and slow transaction rates, “none of that matters as ETH has been on a roll during most of the year, especially since the summer.” Now the second-largest cryptocurrency has become the best-performing asset, with an increase of over 200%.
What we can take away from this is that Covid-19 has driven dramatic changes that have made people become more focused on the digital world. They are looking more to online ventures and digitally transferred funds. What we may be witnessing now is the real beginning of a mass movement to an online world that will leave traditional banking behind.