Written by Desné Masie
Cryptocurrency exchange Coinbase’s listing on Nasdaq at US$86B pushed bitcoin to an all-time high of US$65,000 BTC to USD. Other cryptocurrencies or altcoins, such as ether and dogecoin have also seen all-time highs alongside stellar prices for blockchain-based digital assets such as non-fungible tokens.
Bitcoin’s extreme volatility is often cited as a reason not to invest, but this is a nascent, ascent class, and as such, its volatility is understandable. However, with speculative alternative investments such as these you probably shouldn’t be playing with the house money anyway – you should only invest with what you can afford to lose.
Indeed, on seeing the unprecedented flows into and returns from the asset class, the UK Financial Conduct Authority (FCA) issued a warning to investors on 11 January 2021 that they could lose some or all of their money investing in bitcoin. The FCA is concerned that: consumers may not be protected from money laundering given the incomplete regulatory framework for crypto assets; the price volatility puts consumers at risk of extreme losses; the complexity of the products, particularly with crypto-derivatives, make it difficult for consumers to fully understand the risks; and there may be liquidity issues when trying to convert crypto back to cash.
Nonetheless, while the regulator is right to defend consumers and market integrity, the aforementioned recent developments means the asset class is undoubtedly professionalising. It is also slowly becoming a more generally accepted means of payment. Companies such as PayPal allowing for payment in bitcoins and altcoins will only accelerate this. The potential for bitcoin in Africa is particularly good, with 60% of the world’s mobile money already passing through the continent, and Nigeria being the world’s second-largest bitcoin market after the USA.
So what happens now?
The next frontier for crypto is central bank digital currencies. Sovereigns are already positioning to create digital fiat as crypto begins to challenge bank issued currency. In fact, crypto does particularly well in those countries with macro headwinds. This is the point really, in economics there has long been the concept of “money illusion”. If you believe that fiat money is real or well-governed, you clearly haven’t thought through quantitative easing properly or spoken to any Zimbabweans and Argentinians lately.
Some magic internet blockchain money may just give central banks the challenge they need to start thinking about ways in which they could make money as a public good more efficient. The announcement that the UK is to investigate creating its own “Britcoin” alongside the efforts towards digital yuan and euro, means the crypto and blockchain are here to stay.
I’ve asked some of the leading experts in the space to provide us with their view on the above developments. Hope you enjoy reading this edition.
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