There has been much attention focused on cryptocurrencies in recent years, driven by the meteoric 1,000+ percent rise of Bitcoin prices. But what does cryptocurrency mean on a global scale, and what will the impact of this volatile market be?
Crypto’s Global Allure
Cryptocurrency is a virtual currency that uses cryptography to secure and verify transactions through an anonymous database known as a blockchain, that no one can alter. Counterfeiting crypto coins is virtually impossible, thanks to the secure, multi-step authorization and verification process.
Many western countries still view cryptocurrencies as something of a novelty, but many countries see it as a viable alternative to their domestic mismanaged fiat currencies. For example, citizens of Venezuela are struggling under harsh economic conditions and exponential inflation. But individuals with access to external currencies and cryptocurrencies are faring better than their compatriots. The volatility of the bitcoin market scares many American consumers, but that volatility is still more appealing to Venezuelans than the sharp decline of their domestic currency.
The Global Response to Cryptocurrency
Cryptocurrency is also appealing globally against high taxes and the strict controls that countries place on the flow of money. Because cryptocurrencies can be used to circumvent those controls and taxes, governments around the world are taking notice and central banks have been critical of cryptocurrencies, for some time. The US Federal Reserve has expressed concern over technical, governance and risk management issues; the European Central Bank has called Bitcoin a bubble, and The Bank of Japan has completely ignored cryptocurrency. The People’s Bank of China has expressed interest in taking full control of the market, making it the only major central bank to embrace cryptocurrencies.
Cryptocurrency’s Impact on Investment
While the early adopters of cryptocurrency were mostly young, hip and tech-savvy, there are now cryptocurrency exchange-traded products on the market (ETFs and ETNs). Investors of all stripes are starting to take notice and dip their toes into the market, using crypto as means of hedging against risk, and making the currency more accepted on a global scale.
Many experts still fear a bubble in the market, warning that a crash is imminent. However, given the total market capitalization of crypto is still far less than that of many of the world’s biggest corporations, it is unlikely that a crash would create the global chaos seen in crashes like mortgage-backed securities crash of 2008.
Whatever the future holds for cryptocurrencies, they are not likely going anywhere. In fact, the market is growing ICOs (initial coin offerings) have generated some four billion dollars in the US over the last year. It is likely that governments and central banks will do their best to put more controls over the market, but they likely cannot stop the rise of crypto.
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