Much ado about cryptos
A financial revolution is underway. Tesla cars can now be purchased with bitcoin and prominent investment managers are including cryptocurrencies into their portfolios. In another landmark moment in cryptocurrencies making history, the biggest US cryptocurrency exchange
– Coinbase (COIN)- went live with its direct listing on Nasdaq. You can say Coinbase took the revolution to the castle as it became an instant
Wall Street financial giant on its debut, garnering a value that exceeds the values of the stock exchanges on which it will trade i.e., the Nasdaq and the NYSE.
The monumental listing lends validity to the crypto ecosystem, especially as various global monetary and financial professionals continue to brainstorm on how to bring cryptocurrencies and their underlying technology – blockchain – to the mainstream. No less than 80 central banks are looking at digital currencies while the Bahamas and China are ahead of the pack with
the launch of the Sand Dollar and e-Renminbi, respectively. While much of our lives are being lived digitally, the financial sector would need to catch up sooner or later. As such, Central banks cannot distance themselves from
cryptocurrencies for much longer. They must either plug into the ecosystem or compete with it. Regulators tend to move slowly, and crypto markets do not, so they will always play catchup.
The risk of currency substitution however looms large in countries with high inflation and weak local currencies. The recent slides in the Turkish
Lira, on the back of its rising inflation, has caused people to pile into bitcoin as an alternative store of value. A similar scenario played out in Zimbabwe’s five years back – during a phase in its hyperinflation episode –
when young Zimbos turned to bitcoin to preserve their money’s worth. Little wonder, African countries have some of the biggest crypto economies, following a series of economic tantrums that have scarred their economies over the past decade. Nigeria’s crypto adoption, for instance, is one of the highest in the world.
But regardless of all the positive buzz around cryptocurrencies, they still do not qualify to be a threat to fiat currencies as they do not check the boxes of stability, compliance, and safety, which could make them pass for money. They are also not your gold 2.0, even though its global market capitalization may stand at 10% of gold’s market capitalization.
The cryptocurrency ecosystem is maturing rapidly, no doubt, but cryptocurrencies remain a very speculative asset class with tremendous volatility. COIN’s listing may be a watershed moment for the crypto industry because it gives conventional investors, who may be skeptical to invest directly in risky digital currencies, the ability to own stock in a SEC-approved company that enables crypto transactions. However, the price of COIN will be very volatile, and you should expect it to fluctuate with the prices of cryptocurrencies.
So, central banks are not likely to lose their monopoly regulatory status of their financial systems in the near or distant future. However, in building crypto infrastructure and regulation, they still need to protect the things they are charged with protecting, while also respecting the freedom of consumer choice to transact via whatever medium they find convenient.
Cryptocurrencies have use cases that will come to fruition over time and by joining the ranks of listed companies, Coinbase has put crypto market
businesses in the big leagues. They now have a place in the conventional capital market, and this is where the real impact on adoption starts.