Last year, industry experts were dumbfounded by the meteoric rise in the value of digital currencies like Bitcoin and Ethereum. As the market capitalization grew, so did the concern that the cryptocurrency bubble would burst. This is nothing new as the same had occurred on the prior bitcoin price surges. Nonetheless, it did have many fearing that their fortunes would vanish. In the first quarter of 2018, the value of Bitcoin suddenly dropped by more than half. This shocked the entire blockchain industry and even blew off top performing “alt-coins” like Ethereum.
The remainder of 2018 continued to be a brutal year for investors as many people experienced huge losses. People started to throw around the “Bubble has popped” phrase as was the case in the previous downturns. Is this the end of crypto? This is the 4th time bitcoin has had drops of greater than 60% to later blow right by the previous high. Will it do it again? Will altcoins survive this crypto winter? Regardless of the pain that we have undergone, there are many developments in crypto that seem to hint that the technology is here to stay.
Blockchain as a Service
A blockchain is defined as a distributed open ledger that can record transactions between parties quickly in a verifiable and permanent way. In many cases, blockchain has become a necessity with the growing community of people and institutions online. This is thanks to its functionality of peer-to-peer (P2P) networks where unidentified people upload and download various data files. These peers run crypto software (for example, Bitcoin software) to verify transactions, independent of any bank or treasury. Therefore, every time people exchange cryptocurrencies or record a transaction online, the whole network gets updated with this new information.
Such technology helps in keeping an immutable record of business transactions. Slowly and steadily, many big businesses and even governments across the globe are adopting this technology, bringing it into the mainstream economy. Major shipping firms like Maersk and technology giant IBM are already in the process of creating their own blockchain. Did you know Disney had developed their own private blockchain back in 2015? Its blockchain has eventually evolved into a network called Dragonchain which is a smart contract competitor to Ethereum and Tron. Even JPMorgan has recently launched its own cryptocurrency – JPM Coin. We all remember their CEO, Jamie Dimon, has always been one of cryptocurrency’s arch enemy with such punches such as calling Bitcoin a scam. I guess he realized that if you can’t beat, you have to join it.
Furthermore, the Chinese government has teamed up with VeChain – a blockchain company that specializes in authentication and verification technologies. Using its blockchain, sellers can assure their customers that they are buying what they are paying for. By using blockchain, governments can also keep accurate records and ensure that there will always be a clear audit trail thanks to its transparent nature that would make it harder for corruption to slip through the cracks.
Many governments are also looking to find a way to incorporate the blockchain world within their current systems in a legal manner. Here is one such example:
Future of Cryptocurrencies and Blockchain
With blockchain, things as secure (and confidential) as medical records, identity documents, and educational qualifications could be stored and verified easily. Thus removing the need of the day-to-day grind of dealing with the cumbersome cross verification of data across different systems and locations.
Cryptocurrencies are now being utilized as decentralized tokens to execute transactions on blockchains. With the increase in the number of partnerships between governments, corporations, and blockchain developers, investors are recognizing the potential value in stocking up on cryptocurrencies. It is true that onlookers, investors, and everyone in between are concerned about the future of cryptocurrencies. Here is where you have to look at the facts and decide for yourself. Below are 6 reasons why I feel cryptocurrencies are here to stay.
1. Non-correlated Asset
This is one key area where cryptocurrencies have an upper hand over more traditional assets. This is a very valuable feature that investors and traders look for when dealing with traditional assets. Cryptocurrencies will not care whether the unemployment rate went up or down, whether interest rates were increased, nor whether Amazon met its earnings estimates.
2. Perfect for Portfolios
If you are looking for a varied allocation in your portfolio, then crypto is a great option because of the low correlation of cryptocurrencies and other asset classes. Asset managers, retail investors, and traders know very well that low correlation allows for bearish markets in traditional asset classes to not have a significant impact on the overall portfolio. Cryptocurrencies can weigh more during these periods. Thus, incorporating cryptocurrencies into your portfolio can bring great results in the long run.
Let me explain why asset managers will love adding a non-correlated asset like a cryptocurrency to the mix. When the stock market does not perform, people reduce their contributions. This reduction highly impacts the earnings of these asset managers. Keep in mind that the goal of these asset managers is for their customers to remain in the game so that they can continue to charge fees and trade commissions. Having a non-correlated asset in the mix will reduce the investor turnover rate during bear markets, hence, keeping the cash cow going. That’s what it is all about!
3. High Volatility
Crypto is a very volatile market and is usually viewed negatively by inexperienced and long term investors. However, traders know that high volatility opens the door for the potential of incredible returns. Many traders claim that they have been able to make sizable returns even in a stagnant or declining market. Anyone who is a trader loves high volatility.
4. Incredible Innovation Potential
Blockchain use cases are evolving across the cryptosphere. Of course, it all takes time to develop. So this where we have to track projects and see if they are actually delivering what they promised. There are current blockchain based applications focusing on production to consumer tracking, gaming, digital identity and security, decentralized online content distribution, data storage and encryption, financial services, recordkeeping, amongst many other innovative concepts. It is just a matter of time before some of these applications make a huge impact on our lives.
5. Freedom from National Currencies
We all live in a world of conflict where international sanctions have been quite tough in certain countries such as Iran. There are also a large percentage of citizens in countries whose fiat currencies have been depreciating. These people are looking for a usable currency that is not bound by their government’s ability to control the supply. Cryptocurrency may the answer!
In the recent past, the Lira of Turkey fell 20 percent overnight as the United States imposed sanctions. This led to a massive spike in Turkish cryptocurrency exchanges. Citizens of the country realized that investing Lira into cryptocurrency would help them avoid the impending drop of the Lira. Thus, cryptocurrencies have emerged as an attractive alternative and safety valve for citizens of any country. This is thanks to its anonymity, ease of conversion, and the ability to move funds overseas.
6. Institutional Funding
Blockchain technology has enabled stock exchanges to significantly reduce the cost, complexity, and increase the speed of the trading and settlement processes. Nasdaq has been at the forefront of the blockchain revolution as it unveiled the use of its Nasdaq Linq blockchain ledger technology. Its main purpose is to complete and record private securities transactions.
Bakkt, a cryptocurrency exchange and liquidity provider created by the New York Stock Exchange’s parent company ICE has raised $182.5 million from a group of high profile investors and venture capital firms. Bakkt is probably the biggest catalyst for crypto because of what it brings to the table. Institutional grade services and Custodianship!
Our mission is to build the first integrated, institutional grade exchange-traded markets and custody solution for physical delivery of digital assets— Bakkt (@Bakkt) January 16, 2019
The Australian Stock Exchange (ASX) has selected U.S.-based blockchain startup Digital Asset Holdings, LLC to develop distributed ledger based solutions for clearing and settling trades. Many top banks such as Agricultural Bank of China Limited, Bank of America, Bank of China, and Wells Fargo are researching and developing their individual blockchain projects to streamline work processes.
Cryptocurrency is gaining ground, and could become the de facto mode of payment for internet users. Thanks to the growth and innovation happening in the blockchain industry, a regulatory framework might get developed around cryptocurrencies making it the future of money and of economies around the world.