Cryptocurrency: What’s next? Is it a bubble or prices will reach new horizons?
Let’s review some key points, so everyone can draw their own conclusions. Below are ways cryptocurrency differ from fiat money:
1. Cryptocurrency is impossible to tax or take away, that aligns cryptocurrency on the same level as gold.
2. Ownership anonymity. You could hold millions in cryptocurrency and no one could know about it except you.
3. Fiat currency is connected to traditional banks with long history of creating and updating generations of their IT infrastructure. At the moment banks cannot process transactions in real-time 24 hours all year through. Perhaps, sometimes in future this will change, but for now cryptocurrencies have the advantage of allowing transfers of unlimited sums to any part of the world in a few minutes with little transaction fees.
4. There is no uncontrolled emission in cryptocurrency. According to classical economics studies, it is a great disadvantage for main currency (without emission it is possible to get deflation with many problems). However, cryptocurrency is not aiming to become the main currency; rather its main goal is to support the online economy and continually support currency to fiat money conversion (at least in the medium term).
5. The question about value is more about a faith in currency as an instrument of payment. You buy bitcoin, gold or dollars in hope that later you could find another person who will agree to exchange them for something useful. However, fiat currency has one more strong advantage provided by debts. The store owners accept dollars not only because they believe in settling accounts with suppliers with dollars, but because they also know for sure that they need the dollars to repay loan in the bank.
In fact, it is quite clear that the cryptocurrency has more similarities to gold than the fiat currencies. The value of gold for the buyer also rests on the belief that they will be able to sell this same gold on to someone else, at sometimes even higher value. But gold has one disadvantage, it is difficult to use as a payment instrument (and in fact gold is not used as a payment instrument).
Let’s conclude that the key differences are in points 1–2 and 5. However, the governments do not like the first two points, and they will do everything possible to liquidate them. This is because they consider it their duty to have the right to take money from citizens of their respective countries. Perhaps, there will not be radical measures, although in history there have been precedents: US government in 1933 issued the Executive Order, which made gold ownership — both in coins and in bars — illegal for all Americans and punishable by fine or up to ten years in prison. But, for sure, the governments will regulate cryptocurrencies; maybe it will be an establishment control at all mass currency exchange points, and prohibition of all other possibilities to exchange cryptocurrencies to goods or fiat currencies. Moreover, at those exchange points, identification will be required and, most likely, selective control with the requirement to report on the origin of the funds.
What about market size?
On one side, we can see that cryptocurrencies are a small part of the world economic and they have a potential for growth even in comparison to its most similar analog, gold. On the other side, in recent months, there has been an explosive growth in cryptocurrencies capitalization and rush in news; this is typical for growing bubbles.
As a result, we cannot conclude on what would happen to the crypto-currencies market, but what exactly we can comment on is that all this uncertainty will lead to great volatility (which has already occurred). Therefore, we decided to focus on strategies that do not depend on the course of the cryptocurrencies and one that works better on a volatile market. In the medium term, this allows to eliminate volatility risk and create a source of stable income. If you want to do the same, join us at http://www.TensorBox.com
As a group of “quants” with academic background in Numerical Methods, Computational Mathematics, Game Theory and hands-on experience in High Frequency Trading and Machine Learning, our interest was in exploring opportunities in cryptocurrency markets, with the goal of exploiting various market inefficiencies to generate steady absolute returns (not correlated with market movements) with low volatility, or simply put, steady profit without major drawdowns. For more information please visit http://www.TensorBox.com and if you like what we do you can participate in our Initial Token Offering.
