Will cryptocurrency be the downfall of traditional global economies?
With cryptocurrency, the blockchain, and its many offshoot variations becoming increasingly popular, Business Leader has looked at how these disruptive entities are impacting the traditional elements of economies around the world.
America & Russia eyeing Bitcoin: a moment of critical mass for crypto?
Bitcoin and cryptocurrencies are at a tipping point as two rival major world powers – the U.S. and Russia – both appear to be moving towards state acceptance of digital money, affirms the CEO of global financial giant deVere Group. The bold assertion from Nigel Green comes as the Biden administration is preparing an executive order for release as early as this month to set out a comprehensive government strategy on cryptocurrencies.
Meanwhile, Russian President Vladimir Putin is backing his government’s proposal to promote Bitcoin mining in the country through clear taxation and regulatory measures.
“We need to regulate, not ban,” said the director of the financial policy department of the Russian Ministry of Finance, Ivan Chebeskov.
Elsewhere, the UK’s former Health Secretary during the pandemic, Matt Hancock, writes in CityAM on Friday: “The mainstream arrival of cryptocurrencies is set to shake the foundations of banking… the centuries-old idea you need a bank to make a payment is coming to an end.”
Nigel Green says: “Two rival world powers, the U.S. and Russia, are both now seemingly scrambling to beat each other in the move towards accepting and regulating Bitcoin and cryptocurrencies at a federal level.
“Whilst they remain fundamentally politically and ideologically opposed, both Washington and Moscow appear to be coming to the same consensus that in a digital age, traditional fiat currencies are on borrowed time and have been for a while.”
He continues: “Despite currently having the world’s reserve currency, it seems the U.S. knows the future is inevitably digital. This would explain why Biden is rushing a directive that would place the White House in a central role overseeing plans to set policies and regulate digital assets.
“For his part, Putin will appreciate the obvious advantages of cryptocurrencies for his country as they allow Russia to sidestep U.S. sanctions and circumnavigate the global SWIFT banking system that’s dominated by the U.S. central bank.”
Nigel Green goes on to add: “Bitcoin and cryptocurrencies have already changed the way the world handles money, does business, makes transactions and manages assets. But it feels the market is now at a tipping point.”
It’s partly for this reason, earlier this week, the deVere CEO challenged the IMF’s demands for El Salvador to drop Bitcoin as legal tender.
He noted: “The IMF asking a pioneering sovereign nation to drop a future-focused financial policy that attempts to bring it out of financial instability and a reliance on another country’s currency shows the institution to be on the wrong side of history.
“Bitcoin is the world’s largest digital currency –- and digital is the inevitable future of money. For the IMF not to recognise this is baffling.”
Nigel Green concludes: “There’s a sense that Bitcoin and crypto is headed towards a moment of critical mass, at which a new way of doing things crosses a threshold.”
Is appealing to traditional investors key to economic recovery and wider crypto acceptance?
Cryptocurrencies have often been viewed as the unregulated, ‘Wild West’ alternative to traditional aspects of business and economy, and that has failed to appeal to more traditional investors, who instead look to invest in companies and the stock market. But, is this starting to change as crypto is rapidly becoming more mainstream?
Alpesh Patel OBE, Founder and CEO at Praefinium Partners, provided his analysis.
He comments: “In 2022, we will see more coins, more people making a lot of money very quickly, and more people losing a lot more quickly. There will be more coins linked to Metaverse, Defi and NFTs – and every fad you can imagine. Basically, where there is noise there is money to chase it. Is that bad? Well going to Vegas is not bad, as long as you know you are in Vegas.
“Equally, are these people buying day one Microsoft? They think they are. Are they wrong? Crypto is like modern art. Some of it will hold value, even though you may think it is worthless junk. Some of it is worthless junk. Is all modern art rubbish? Well, I think Pollock is b*llocks but some guy in Japan or Saudi is willing to pay millions for each unit.
“With investors today, they don’t know it is just modern art. And like modern art it causes divided opinions between those who think it is junk and a gamble with no intrinsic value, and those who think it is the future of human civilisation. Volatility does not help. We associate volatility with gambling of course and these assets are volatile. And we associate bricks and mortar with safety. So, some of it is a perception problem. Some is reality.”
Although the wide range of views over the role crypto will play in the future of business and economies in the years ahead, one of the main detractors for traditional investors taking an interest in the industry is the volatility factor. For example, Bitcoin’s value rose and fell by more than 50% over the year – too risky an investment from investors who may not have as much of a grasp on the industry compared to what they have always known. But is this now changing?
Nigel Green comments: “Whether it is Bitcoin, or any of the current generation of tokens, or not, cryptocurrencies are here to stay. Meanwhile, financial traditionalists are viewing cryptocurrencies the way traditional stores used to view online retailers such as Amazon. But digital currencies have already changed forever the way the world handles money, makes transactions, does business, and manages assets. The ‘old guard’ is, I believe, finally waking up – as evidenced by Wall Street giants now having crypto operations for their wealthier clients.”
Martha Reyes is the Head of Research at digital asset exchange and brokerage platform, Bequant.
Reyes continues: “Some traditional investors see crypto as a bubble. Many have shifted in recent years; particularly successful macro investors and, latterly, venture capitalists have become excited about the space, as demonstrated by record investment levels. Also, the 24/7 nature of the market means traders can run round-the-clock operations in the way they can’t in traditional markets.”
Interestingly, in a recent survey conducted by deVere Group, Bitcoin, other cryptocurrencies and NFTS are more trusted than stocks to give investors better returns in 2022.
The poll taken by almost 6,000 individuals on LinkedIn since the beginning of the new year finds that 30% of respondents believe that ‘another cryptocurrency’ (other than Bitcoin) will yield the best results; 25% say Bitcoin and NFTs; and 20% believe stocks will outperform the others.
Green’s organisation, who ran the survey on the business networking platform says the results were ‘surprising’. He comments: “Stocks, which have always traditionally made up the bulk of successful investors’ portfolios, are falling out of favour it seems as a way to create and build wealth, with digital assets taking over. Also, it’s surprising that it’s believed by investors that ‘other’ cryptocurrencies, and not the headline-grabbing, dominant Bitcoin, will out-run other asset class this year in terms of returns.”
A volatile ride for crypto as worries about inflation continue
Susannah Streeter, senior investment and markets analyst shares her thoughts on how inflation is impacting crypto and investors.
Those niggling worries about the impact of a rise in interest rates on the value of future earnings are threatening to fast turn into a painful reckoning for many tech investors. The punchbowl of cheap and easy money being withdrawn from the party a lot sooner due to soaring inflation is inducing an early hangover for a basket of pandemic winners.
It’s not just high growth stocks coming under the cosh, crypto currencies have been on another rollercoaster ride today as investors take fright from riskier assets. Bitcoin dipped below $40,000 dollars last month before bouncing back, as New Year resolutions of diversification came into play, with some investors offloading the crypto asset for more defensive positions.
Crypto assets are highly sensitive to the fortunes of the stock market and have been propelled higher in this era of ultra cheap money, so it’s no surprise they have been hit with a severe case of the jitters as policymakers ponder their next move.
Are we on the verge of ‘Crypto Winter’?
There is currently a lot of speculation in the cryptocurrency realm that a ‘crypto winter’ is on its way. But what would this mean for the market and investors? Andras Ivan, analyst from international broker comparison site BrokerChooser shares his thoughts.
The current downturn of the crypto market has seen Bitcoin plunge down 50% from a record high in November and the entire crypto market shed over $1 trillion in the past three months leaving investors reeling. Some fear the worst is yet to come with a possible ‘crypto winter’ making the rounds again.
A crypto winter refers to a downward trend in the market that has longevity. It is often associated with the crypto winter of late 2017 which saw Bitcoin plunge more than 84% from its then all time high. The vast majority of other coins plummeted in unison and the crypto markets didn’t show signs of recovery until mid-2019.
With it being more that 75 days since Bitcoin fell from it’s all time high $68,990 some believe the crypto winter has already hit. However the slump seems to be more of a ‘correction’ than a downturn. Bitcoin would need to bottom out at around $11,000 to reflect that of the previous winter percentage loss which seems unlikely to happen.
Even though the current crypto trend looks bearish, we have to take in consideration that the structure of crypto investments is quite different now compared to the previous peaks at the end of 2017. The market cap is significantly higher now and institutional investors joined in the past 1-2 years. That might help the market to avoid such serious drops and disappearing interest that we experienced in the crypto winter of 2018-2019.
Of course, we can’t know for certain whether crypto winter Ⅱ is here or on its way but there are some things we can do to prepare.
- Don’t panic
It can often be the hardest part of investing, but keeping your emotions intact during a bear market is an important step. Always make sure to have a concrete plan in order to avoid making snap decisions in an incredible volatile market. You can only manage what’s in your control and not panic about what’s outside of it.
- Assess your crypto holdings
Looking at the crypto you have and why you have it is the best way to stick to an investment through good and bad times.
- Evaluate potential scenarios
Mapping out what you would do if your crypto portfolio fell by 10%, 20% or 50% will help you feel more in control and help you make a more calculated decision.