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The Rise of Crypto and What We Can Predict for the Future

Cryptocurrencies have proven their power to elicit a range of emotions in their short history. Excitement, shock, fear and bafflement – even a mix of all the above – have helped to fuel the sense of hype around them. If you’re an experienced trader who has studied the markets (with shelves full of the sorts of books highlighted here by IG) then you’ll have been spending time trying to work out what sort of asset cryptocurrencies will be and how their behaviour matches and differs from the existing markets. Yet cryptocurrencies have, by their nature, also attracted new people who have never invested before. That’s only added to the mystique and sense of unpredictability – with traders discovering the markets for the first time through a volatile asset.

The story of cryptocurrencies, in essence, begins with a crisis. As Inform notes: “In the wake of the 2008 financial crisis, the trust in banks, financial institutions and governments has melted away amongst the populations of Europe and the USA; this is especially true amongst the younger, more tech-savvy demographic. It is from amongst this group of people that Bitcoin emerged. A central tenet of cryptocurrencies is to avoid using banks or established financial institutions to route money or accept payments. This cuts out the need for banks as third-party guarantors of transactions, and limits the ability of governments to interfere or regulate payments.”

In the time between the last crisis and the current corona-fuelled one, cryptocurrencies have fed that need for a tech-savvy payment method that is fast, secure and free from central control. Yet it’s fair to say that there’s been much debate on its place in the world – something that has been borne out in the rollercoaster ride in the values of cryptocurrencies. Indeed, the rise and falls here have made the famously-fluid forex markets seem calm in comparison. Bitcoin rocketed to a price of about £15,000 each at the end of 2017, before an equally-dramatic drop to about £2,500 at the end of 2018. There followed a recovery – back up to almost £10,000 per bitcoin in 2019 – before big falls at the start of the current crisis.

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It’s still not clear whether these will be seen as an out and out replacement for fiat currencies, a ‘safe haven’ asset ala gold – or as something else entirely. Given that cryptocurrencies emerged in the aftermath of one crisis, it’s perhaps only apt if it’s another one that crystallises their place in the world.

The early signs have been mixed. As CNBC notes, cryptocurrencies saw an eye-watering $93.5 billion wiped off their value on March 12 and bitcoin’s price crashed 48%. Were cryptocurrencies just too much of a risk in a world where uncertainty was taking hold? Perhaps not. Since then the market has rallied and prices have recovered ground. The ‘safe haven vs risky asset’ debate rages on.

It’s important not to read too much into one rise or fall – especially not in a market that has lived and breathed volatility. It’s important to try to think about the post coronavirus world. If 2008 saw people question their faith in the banks and individual governments to control money, this crisis has the power to cause them to lose it entirely. It’s too early to say, of course, but poor governance and crisis management would only serve as even more fertile ground for cryptocurrencies.

Cryptocurrencies do still have an image problem to overcome – especially if they are to completely usurp fiat currencies. More retailers need to be persuaded to accept them and more people to put their trust into using them. That’ll be an easier case to make if the population loses faith in the existing order though, which is why this crisis might well be the making of cryptocurrencies.

If the crisis blows over quicker than expected then we might well return to the same pre-corona debate with crypto in limbo. If it’s handled well by governments and banks and people are somehow protected from the worst economic effects, that might reduce some of the post-2008 frustration. Yet, equally, a bad crisis, handled poorly could be the conditions needed for a fully-fledged digital payment revolution. Watch this space.


Staff Writer at CPO Magazine

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