CRYPTOCURRENCY — The Next Big Revolution??
Cryptocurrency is decentralized digital money, that uses peer-to-peer technology ,which works based on blockchain technology. In the past six months, cryptocurrencies have seen their prices skyrocket on the back of tweets, comments on social media, and advice from random people some of who barely know anything about how cryptocurrencies work. There are now over 4,000 in Crypto currencies in circulation in 2021 vs 180 sovereign currencies recognized as legal tender in United Nations (UN) member states. Cryptocurrency enables all functions such as currency issuance, transaction processing and verification to be carried out collectively by the network.6 While this decentralization renders Bitcoin free from government manipulation or interference, the flipside is that there is no central authority to ensure that things run smoothly or to back the value of a Bitcoin. Bitcoins are created digitally through a “mining” process that requires powerful computers to solve complex algorithms and crunch numbers. They are currently created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a level that is expected to be reached in 2140. As the price kept moving up, everyone felt the FUD (fear, uncertainty, doubt), and started pumping even more money in a typical action that every retailer takes, not just in cryptocurrencies but in every asset class. The result is that over the recent past, many retail investors found themselves trapped in a situation they’ve been in before. These characteristics make Bitcoin fundamentally different from a fiat currency, which is backed by the full faith and credit of its government. Fiat currency issuance is a highly centralized activity supervised by a nation’s central bank. While the bank regulates the amount of currency issued in accordance with its monetary policy objectives, there is theoretically no upper limit to the amount of such currency issuance. In addition, local currency deposits are generally insured against bank failures by a government body. Bitcoin, on the other hand, has no such support mechanisms.
The value of a Bitcoin is wholly dependent on what investors are willing to pay for it at a point in time. As well, if a Bitcoin exchange folds up, clients with Bitcoin balances have no recourse to get them back. Some economic analysts predict a big change in crypto is forthcoming as institutional money enters the market.3 Moreover, there is the possibility that crypto will be floated on the Nasdaq, which would further add credibility to blockchain and its uses as an alternative to conventional currencies.4 Some predict that all that crypto needs is a verified exchange traded fund (ETF).5 An ETF would definitely make it easier for people to invest in Bitcoin, but there still needs to be the demand to want to invest in crypto, which might not automatically be generated with a fund. More than 60 per cent of young students in the US see crypto as a longterm investment, and some 24 per cent have an appetite for “moderately aggressive” risk, according to a survey of more than 500 college students and grads published by College Finance, a site that specializes in advising student loan borrowers.
Bitcoin’s price is up nearly 16 per cent so far in 2021 after being up 122 per cent at one point. The adoption by institutional players to crypto assets from the last quarter of 2020 accelerated the upmove in their prices. By comparison, gold, bitcoin’s closest traditional rival asset, is down 1 per cent in 2021. The recent rise of Bitcoin toward all-time highs is creating millionaires, on paper, at a fairly rapid clip, according to data from BitInfoCharts. There are 78,870 accounts holding bitcoins worth at least $1 million and there are 6,797 that own bitcoins valued at more than $10 million, according to BitInfoCharts. Crypto-exchange Coinbase said its more than 56 million users accounted for $335 billion in trading volume in the first quarter: $120 billion retail and $215 billion institutional. That compares to $30 billion in total a year earlier, of which $12 billion was retail. While the cryptocurrencies have caught fancy across the globe, they are recently facing existential crisis. China’s latest salvo against cryptocurrencies and Elon Musk’s tweets has driven a brutal selloff in bitcoin and other crypto markets.
China’s announcement of a tougher ban on banks and payment companies offering crypto-related services furthered a selloff that briefly wiped $1 trillion off crypto market capitalisation.
