Bitcoin stays here. Certainly not in its current form. But cyber currencies, or cryptos, show amazing sustainability despite their plunge in value.
The latest has wiped out over $ 1 trillion (US) crypto value in recent weeks as part of an investor’s escape from all risk assets, including tech stocks.
Most of the losses came from the largest Bitcoin holders by far among the thousands of cyber currencies.
Crypto requires regulation of current lawless jurisdictions where users of these digital currencies are virtually unprotected from fraud and other losses. The crypto industry also needs a classic shakeout that produces a small number of reliable, efficient, and physical asset-backed cybercurrencies.
Bitcoin enthusiasts and investors have learned from experience that a very strong rebound has occurred following a plunge in value, setting a record price of around $ 68,000 at its peak last November. I am.
After the latest plunge, Bitcoin will trade in the $ 30,000 range. Even at its modest price, it’s valued at more than nine times the 2018 lows of around $ 3,200.
The belief of cryptocurrency supporters is very important in understanding cryptocurrencies. Cryptocurrencies are routinely rejected as a serious part of the financial system due to their instability and position among criminals.
That belief explains the total crypto value, the number of crypto users, and the steady increase in the variety of crypto-related investments such as derivatives, exchange-traded funds (ETFs), and crypto-backed mortgages.
At its latest peak last year, crypto totals were estimated at about $ 3 trillion, or about 5 percent of the world’s financial assets.
As its importance increased, cryptography has been gradually adopted by traditional financial markets.
This process has been underway since the last decade when commercial banks and other major financial institutions began adopting blockchain. Blockchain is a system that evolves with crypto to process crypto transactions and store investors’ crypto holdings.
Among other strengths, blockchain technology is an effective tool for speeding up financial transactions and verifying and granting ownership of assets.
Today, traditional financial firms are rushing to buy the crypto itself.
During the latest plunge in Crypto, US mutual fund giant Fidelity Investments Bitcoin last month to a 401 (k) retirement plan for US employees with 23,000 employer clients responding to Canadian RSPs. Said that it can include holdings of.
This month, Goldman Sachs Group Inc., a major investment bank in the United States, and Barclays PLC, a major commercial bank in the United Kingdom, were one of the leading investors in a crypto investment platform or exchange four years ago called Elwood Technologies LLP. ..
In 2018, when cryptocurrencies plunged the most seriously to date, Warren Buffett said cryptocurrencies were “probably the square of rodenticides.”
But in February, Buffett’s conglomerate Berkshire Hathaway Inc. revealed that it had purchased $ 1 billion worth of shares in New Holdings, a Brazilian online bank that allows 50 million customers to trade in cryptocurrencies. I made it.
As already mentioned, there are virtually no rules for cryptographic activity.
At this point, these rules are most likely from the central bank, with more than 100 developing their own cyber currencies, including the Bank of Canada.
But so far, all but a few central banks have postponed the launch of cyber currencies, and it’s still unclear whether crypto is meeting the needs of the market.
Still, the rapid asset growth of crypto for just 13 years (the total value of crypto is now fixed at around $ 1 trillion after the recent recession) proves that crypto is well suited to the market. doing.
This is especially true in areas of “bank shortage” where Nu Holdings serves. It also includes poorly serviced districts of Canadian cities.
If history is the guide, the total value of cyber currencies will once again exceed previous highs. It demands the urgency of bringing in crypto from the cold.
“The more cryptocurrencies grow, the more they hint at themselves in the financial system and attract leveraged investors,” a recent Bloomberg editorial warns.
In other words, cryptography can be large enough to endanger the entire financial system.
This means that central banks will soon face tough decisions.
Are they trying to beat existing cryptos with their own new cybercurrencies? It risks pushing non-state cryptos back into the shadows beyond regulation.
Or does the central bank design new ciphers to co-exist with a small number of internationally popular and reputable independent ciphers and agree to regulatory compliance and compatibility with central bank ciphers? ??
In either case, cryptography is part of the future of our cashless society. By the end of the decade, it will be as well known as Visa and Mastercard are today.
David Olive is a Toronto Star business columnist based in Toronto. Follow him on Twitter: @TheGrtRecession
