The Bright Side of Cryptocurrencies
I’ve previously discussed The Dark Side of Cryptocurrencies and to balance things out, I’ll now outline the bright side of cryptocurrencies. But just to recap, the two important downsides of cryptocurrencies are market manipulation and their use in illegal transactions.
The following are the upsides of cryptocurrencies:
- Global appeal and recognition
- Institutional investment
- Rise of cryptocurrency industry
- Perceived instability of the US dollar
- Opposition to central and commercial banks
- The need for digital currency
I want to note that when I say “bright side of cryptocurrencies”, it implies the potential of cryptocurrencies such as Bitcoin. There’s nothing bright about the instability of the US dollar or opposition to central banks, but these are important decision factors for proponents of cryptocurrencies and why many are turning to Bitcoin.
It’s not a matter of if there will be a dominant virtual currency, but it’s a question of when.
Global Appeal and Recognition
Cryptocurrencies are no longer obscure and unknown to the world. For example, Bitcoin is often in the news to the point that it’s probably as powerful and popular as major Brands (Apple, Nike, Pepsi, Google, Microsoft, Tesla, etc). Today Bitcoin hit $USD 60,000 giving it more than a trillion dollar valuation. As Bitcoin is adopted widely, it will help millions of people around the world who have mobile phones, but can’t afford to have bank accounts. Bitcoin is more than a currency for them, it’s a bridge to a sense of freedom and control. This is particularly true in countries where banking and the bureaucratic systems are corrupt and abusive or where fiat currencies are extremely unstable. These societies won’t adopt Bitcoin overnight, but eventually they will — the same way they adopted the Internet, mobile and social media technologies.
Institutional Investment
Some institutions and companies are taking big positions in Bitcoin thus giving credibility and endorsement to cryptocurrencies in general. Just recently, the Canadian firm, Purpose Investment introduced two Bitcoin-based ETFs making investing in the cryptocurrency possible without the need to buy it from crypto exchanges. They also claim that they provide a higher level of security and assurance. The following is a listing of top ten institutional ownership of Bitcoin:
Top Ten Institutional Bitcoin Ownership (as of June 2020)
Source: Forbes
Rise of Cryptocurrency Industry
During the gold rushes of the 19th century, gold miners but also those who sold ‘shovels’ (tools, accomodation, transportation, etc.) were trying to get rich. It’s often jokingly stated that in some cases not the gold miners but those who sold ‘shovels’ got rich! History repeats. Today, as people try to rush to buy and invest in cryptocurrencies, an entire industry has evolved alongside it: cryptocurrency trading exchanges, mining hardware and software, job opportunities, books, seminars and etc. Coinbase, the world’s largest cryptocurrency exchange is valued at almost $100b before an anticipated IPO. So it’s not solely people trading cryptocurrencies such as Bitcoin that are in the market but there’s an entire industry flourishing alongside cryptocurrencies.
The volatility of Bitcoin prices will stabilize over time.
Perceived Instability of US Dollar
There’s widespread pessimism about the future of the US dollar. I’ve discussed these in detail in my other article, Will Bitcoin Replace the US Dollar?. Although I don’t believe the US dollar is under imminent risk from Bitcoin, the perception about the instability of the US dollar is drawing some people towards virtual currencies such as Bitcoin. The financial crisis of 2008 when banks had to be bailed out resulted in many people losing confidence in the banking system. Many people rushed to banks (bank run) to withdraw their money. This has happened many times in the past such as during the Great Depression and will likely happen again. History almost always repeats itself.
Opposition to Central and Commercial Banks
This is related to the point above as many argue that the monetary policies of central banks debase and devalue currencies. They argue that cryptocurrencies can remove the need for central and commercial banks as ‘middleman’ and ‘watchdog’ and will put people in direct control of their money. The mounting criticism of central and commercial banks and government policies are providing support to the strength and adoption of Bitcoin and other cryptocurrencies.
The Need for Digital Currency
The need for a digital currency is inevitable. The erosion of brick-and-mortar businesses and the so-called ‘Amazonization’ of retail has expanded into virtually all other sectors. The millennials and the next generation would favor a digital currency than to carry hard cash and/or deal with banks. It makes sense that as we ask for a ride, order food, products and services virtually that we also should have a virtual currency. So cryptocurrencies are simply a natural progression to evolution of technology. It’s not a matter of if there will be a dominant virtual currency, but it’s a question of when.
Final Remark
In a nutshell, if concerns about the dark side of cryptocurrencies (market manipulation and illegal transactions) are minimized, the volatility of Bitcoin prices will stabilize positioning Bitcoin (or any other dominant crypto) as a primary payment option and store of value.
All in all, it could result in fair redistribution of wealth and control previously concentrated within central and commercial banks.
