It is seemingly a daily ritual where we hear of the transformational potential of cryptocurrencies or the systemic risk they pose to the global financial system. The bigger question is does anyone really know where the market is headed in the long term?
The one aspect that many people can agree on is that the technology behind bitcoin and other digital currencies has huge potential. Blockchain technology can help to make transactions of all stripes more secure, transparent and verifiable. Industries currently testing use cases in blockchain technology include financial services, insurance, energy, supply chain, healthcare and even archaeology. It is seen as a way to make things more efficient for all participants in a transaction.
Cryptocurrencies on the other hand have not shown to have a whole lot of people in agreement on what they mean to the financial markets and how stable their pricing is.
Jamie Dimon, JP Morgan CEO, in a TV interview in New Delhi last month:
Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down… It’s creating something out of nothing that to me is worth nothing. It will end badly.
Larry Fink, Blackrock Chairman & CEO, in a Bloomberg TV interview:
Most importantly, when I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world. It’s much more of a speculative platform for Asia and it’s heavily used for money laundering… Related to cryptocurrencies, I’m a big believer in the potential of what a cryptocurrency can do.
Mike Novogratz, Galaxy Digital Assets Fund:
This is going to be the largest bubble of our lifetimes, you can make a whole lot of money on the way up, and we plan on it.
James Gorman, Morgan Stanley CEO:
Bitcoin is certainly something more than just a fad. I’ve talked to a lot of people who have. It’s obviously highly speculative, but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.
Axel Weber, UBS Chairman, at a conference organized by the Swiss Finance Institute:
I get often asked why I‘m so skeptical about bitcoin, it probably comes from my background as a central banker. The important function of a currency is, it’s a means of payment, it has to be generally accepted, it has to be a store of value and it’s a transaction currency. Bitcoin is only a transaction currency.
Christine Lagarde, Head of the International Monetary Fund:
Why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable. In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.
Lloyd Blankfein, CEO and Chairman of Goldman Sachs, on Twitter:
Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.
— Lloyd Blankfein (@lloydblankfein) October 3, 2017
The market has taken all this commentary and continued to grow at a substantial pace in 2017. As of this writing we have seen more than 55 crypto focused funds and over 175 initial coin offerings or ICOs. The market cap of digital currencies exceeds $140bn and according to CoinMarketCap there are well over one hundred tokens available for trade.
Recent regulatory guidance, from China banning ICOs and cryptocurrencies to the Securities and Exchange Commission issuing a report and filing charges at what they called a fraudulent offering, has only affected pricing in the short term.
I think the likes of Bitcoin, Ethereum, Ripple and other well established tokens have shown their staying power. The bigger long term question is will worldwide regulatory bodies begin to put more structure around the market or will these currencies still operate in the decentralized non-conforming manner in which they were originally created.
