The Strategist

What does future hold for cryptocurrencies?

12/07/2018 - 11:45

Combination of several unique factors inspires hopes that rumors about death of the crypto market have once again been exaggerated.

This year in the world of cryptocurrency is marked by several landmark events, some of which can be called even historical. Everyone who follows the news probably heard of them. But few people pay attention to an unprecedented combination of well-known and little-known factors. To start with, let’s recall what major news have agitated the crypto community in the past year.

The first thing that was remembered was the initiative of Venezuela, which was bold with respect to traditional financial institutions. Even though this measure was rather forced, the republic was the first to issue a national cryptocurrency, innovatively tied to oil. Then, value of the national currency, the Bolivar, has been pegged to this oil-backed cryptographic liquidity. Such desperate support was vital to the latter. By this time, the Venezuelan currency has already been devalued by 95%. However, this bold step did not give the new payment unit, any good start. A short time after the birth, its cost fell by 24 times.

The deplorable state of the Venezuelan economy is not the only negative factor affecting collapse of the national cryptocurrency of this country. Unfortunately for financiers from the Maduro government, their certainly progressive initiatives coincided with the next collapse of the main cryptocurrency of the world, Bitcoin. The hard landing of the “king” of virtual money entailed even more rapid fall of altcoins.

Thus, the world of cryptocurrency, including miners, found itself in a rather gloomy mood. After all, the cheaper the cost of Bitcoin, the less profitable it is to mine. Now, the cost of the process nearly exceeds benefits from it.

Participants of the crypto market have already accepted the catastrophic fall of Bitcoin. eHowever, what doesn’t kills us, makes us stronger. From all sorts of factors that can determine the fate of the cryptocurrency market in the near future, here are two most important.

1. Fear of missed opportunities

This has already happened in the past. After the previous collapse in just 4 years, Bitcoin has climbed up to a record $ 19,700. There is reason to believe that such a scenario could happen again. Moreover, this prospect began to clearly crystallize under the influence of a powerful catalyst - FOMO syndrome, i.e., fear of missed opportunities. The founder of the Galaxy Digital Bank Mike Novogratz says that the syndrome is the main driver of the cryptocurrency market. Putting this typical speculative affect at the forefront, he predicted an increase in the value of the main cryptocurrencies by 30% in the first months of 2019. The annoying voice generated by this psychological factor sounds increasingly louder in investors' minds, including because of many similar statements by other leading analysts.

2. The vicissitudes of geopolitics

Moods of active market participants are also aggravated by news about  nationalization of cryptocurrencies. Venezuelan El Petro was only the first shot. Sweden, Iran, Thailand and a number of other countries with economies more developed than that of Venezuela have already declared their intention to release their own national cryptocurrencies.

All this, perhaps, would have remained in words, not I ndeeds, but recent events that directly threaten the economic interests of the European Union made it almost real. German Uniper, one of the largest investors in Nord Stream 2, may leave the project due to US sanctions. The concern is threatened with exclusion from trading using the US dollar as a means of payment. The statement was later refuted, but against this background, Germany’s proposal to create an all-European SWIFT (banking information exchange system) sounded quite loud and convincing.

In this regard, it seems quite logical to jump to the blockchain, bypassing the SWIFT. This will serve as a tremendous impetus for issuance of national and even supranational virtual money. Of course, the very principle of issuing such a cryptocurrency will be different from the same Bitcoin since it will be controlled by state or supranational institutions. However, transaction verification will still be decentralized. Thus, the situation in the world can change dramatically, and the story of the Venezuelan cryptocurrency will be repeated, but only in a positive context.

Thus, it is obvious that the cryptocurrency market is far from total liquidation. On the contrary, the events of the past tell us about an upcoming u-turn in the current situation. Situations in the cryptocurrency world can develop according to multidirectional scenarios, but still fit into the principle of volatility, but cardinal changes in world economic relations have practically become an inevitable reality. And what exactly they will be and what place among them blockchain technology will take, we all will know very soon.