Few things have captured our imagination during this fintech era quite like cryptocurrencies.
Indeed, with financial technology significantly changing how we access, manage and utilize money, digital currencies certainly came into the limelight over the past 12 months.
Following the record highs of Bitcoin in December, going into this morning over $200 billion was wiped off the value of worldwide cryptocurrencies at the peak of the recent sell-off, over talks of imposing more stringent regulations.
Of course, as we saw in the case of Bitcoin last month, assets that move on a vertical upward trajectory, should typically serve as a warning to investors.
So much so that whilst Bitcoin reached its peak last month, the SEC attended to numerous concerns regarding cryptocurrencies. Although a ban has not been implemented, strong caution has been urged by the U.S. regulator. Furthermore, the UK’s Financial Conduct Authority have issued warnings; the People’s Bank of China called for a wider ban on cryptocurrency training; and South Korea addressed the introduction of a similar ban.
As such, with the popularity of digital currencies undergoing peaks and troughs, an increasing number of people are coming forward with the same reservations – do cryptocurrencies, which are in effect invisible, have value?
In essence, value can be applied to something if it possesses the qualities of rarity and usefulness.
In the case of Bitcoin, the rarity factor is that this cryptocurrency has a fixed supply of 21 million bitcoins. Therefore, many economists claim that this cap makes the digital currency more sought-after than gold.
Indeed, with Bitcoin, there’s no cause for concern of a so-called digital gold rush. No-one will uncover a secret supply of the currency, which would lead to the price to crash because of too much supply.
In the case of the usefulness of cryptocurrencies, many experts are of the opinion that they have the potential to be a far more efficient commodity than at present. Advocates cite a number of advantages to digital currencies.
First, they are not controlled by banks or government, they are wholly decentralized; in addition, they can be divisible to any extent - people can use digital currency to buy a house as easily as they can buy a newspaper; furthermore, cryptocurrencies are always advancing and improving, as technologies evolve, which in today’s world happens at an alarming pace.
However, crypto critics claim it is difficult to see the value in digital currencies, as you can’t physically see them, or hold them like you would monetary coins or notes.
In answer to that, you only need to look at the likes of Google, Facebook, Apple or Amazon, the largest organizations in the S&P 500, which are essentially digital businesses, and were founded on and rely on digital trust and confidence.
In essence, these traditionalists who consider cryptocurrencies a whim, a passing fad, are akin to King Canute attempting to command the tides of the sea to go back!
In fact, the world has changed in three key ways that back the rise and rise of digital currencies.
First, technology. Tech plays a huge part of our lives, which will continue to increase as time goes on. As well as existing technologies, pioneering advancements are forecast to make a huge impact on every aspect of everyday life. In the vein, are finances will be no exception.
Second, politics. As the world changes politically, the demand for privacy from non- government or bank-controlled currencies is rising. Indeed, with cryptocurrencies, there is no requirement to share transaction details, identity or location information. Moreover, many supporters maintain that cryptocurrencies are the right to the wrongs of the traditional financial system.
Third, globalization. The world is becoming ever-more globalized, and that’s something that isn’t going to change. People are becoming more inter-reliant and globally-focused than ever before. Of course, this can present important advantages for worldwide trade and commerce.
Consequently, although crypto sceptics may still house digital currencies in something of a ‘valueless bubble’, if the past year is anything to go by, it can be feasibly assumed that their popularity will skyrocket into the future, and we’ll see the introduction of many new currencies to meet the ever-rising global demand.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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