DeutschIf the pandemic has taught us one thing, it is probably that the global economy is by no means safe from slumps. Corona has revealed enormous challenges and problems of the established monetary system in many areas. After the pandemic comes the turbulence caused by the war in Ukraine, rising inflation and exploding energy prices. The fact that the blockchain and the use of digital currencies can offer opportunities and possibilities in many ways is nevertheless only partially perceived by many supporters of the traditional system. In recent years, there have been several examples of how the crypto world – for example, in generating donations or designing global supply chains – can show new ways in today’s world. The fact that cryptocurrencies are increasingly being understood as economic and technological innovations by investors, but also by companies, is particularly evident in one fact.
The important basics at a glance:
- many states & central banks see cryptocurrencies as a threat
- Cryptos are particularly popular in countries with economic crises & poor financial systems
- The USA is continuing to strive for crypto regulation under the new administration
- Danger for crypto-skeptical countries to “miss” the trend
- Cryptocurrencies are arriving in the mainstream faster and faster
The Crypto Market is Still Experiencing a Major Boom
Just seven years ago, there were just under two dozen coins and tokens on the crypto market. There are now more than 3,000 different digital currencies. Even though some offers have failed over time, the enormous variety confirms one thing. Cryptocurrencies are not just a trend that will soon disappear again. On the contrary. The industry is growing steadily. And this is also due to the fact that more and more industries and companies are recognizing the opportunities that the systems have to offer. The image of an instrument for black market players and criminals as a whole still sticks to Bitcoin and especially the so-called Privacy Coins like Monero. And not entirely without reason.
Because it is quite right that the alternatives to fiat money are also used in connection with criminal offences. Cryptocurrencies are ideally suited to record income that is not traceable for financial authorities. But this is only one side of the coin.
States like China are Now Working on Their Own Digital Currencies
Critical voices fear that digital currencies will bring the global currency and financial system to collapse. There are many skeptics, especially in US politics. Meanwhile, China and various other countries are now working on their own digital currencies – so-called CBDCs. Representatives of the crypto industry hope that these efforts will lead to a rethink so that cryptocurrencies can finally make their way into the mainstream.
New US Government: Will it Finally Take a Result-Oriented Path?
As far as the USA is concerned: The appointment of the former chairman of the Commodity Futures Trading Commission (CFTC) Gary Gensler to the transition team of the upcoming US President Joe Biden fuels the hope that the United States will also increasingly open up to the crypto market. Gensler is considered to be rather crypto-friendly and recognizes the opportunities of the new systems. He sees the positive aspects of digital currencies, the blockchain and other technologies in the context of cryptocurrencies.
Companies could Leave the USA Due to Regulatory Concerns
Nevertheless, the USA is not the world leader, apart from large companies such as Coinbase, which are based in the country. The example of the Coinbase exchange illustrates just how problematic the situation is for US crypto services. There has been talk for some time about relocating to Asia due to the difficult regulatory situation in the USA. However, rapid changes in US financial policy are unlikely. Many representatives of the traditional system fear that the crypto revolution is nothing less than the abolition of proven standards. This refers, for example, to the monetary system with coins and banknotes.
One of the opponents of digital currencies:
the economist Prof. Joseph Stiglitz. The Nobel Prize winner warns in particular against a lack of transparency in digital payment systems. It makes cryptocurrencies a risk to the stability of the financial system, which has only been achieved through decades of painstaking work.
Many Companies in the Crypto World are Themselves Calling for Clear Rules
Supporters of crypto concepts are often amused by such statements. For them, such admonishing words are more the fear of those who are against innovation and want to leave everything as it is. The President of the German Bundesbank, Dr. Jens Weidmann, recently spoke like Stiglitz and warned against the emergence of an area that is not subject to supervision. Providers in the crypto industry must also adhere to applicable regulations and take a clear stand against money laundering or the financing of terrorism. It is often forgotten in such critical assessments that there are many representatives in the world of cryptocurrencies, such as the management at Coinbase, who themselves demand appropriate regulatory standards and rules in order to maintain the necessary entrepreneurial security. Because this is essential in order to keep up with countries that are already much further ahead than the USA and most European countries.
Not Only China is Exploring the Opportunities of Blockchain and the Digital Yuan
In some respects, the failures in the USA and Europe are probably also due to the fact that cryptocurrencies are not yet very common here. According to the Statista Global Consumer Survey, for example, only about six percent of the population in Germany use digital currencies to date. The latest surveys put the number of users in the United States at seven percent. The lack of acceptance cannot be due solely to the small number of users. Because even in China, allegedly only eight percent use cryptocurrencies such as Bitcoin or Ethereum. “Allegedly” because not every participant answers correctly in surveys. Even if cryptos also play a minor role in the People’s Republic. However, the state is actively involved in the market, is developing its own digital currency – the digital yuan – and is investing billions in its own blockchain projects.
Facebook’s Crypto Plans Sparked Global Discussions
A key reason why many politicians around the world were up in arms about the supposed danger posed by digital currencies to central bank money was Facebook’s plans for its own stablecoin. This was to be called Libra for a long time (it is now to be called Diem). The social media giant wanted to enable people in countries with no or only a poor banking system to carry out transactions across national borders. Central banks and politicians saw this move from the outset as a problem for the “intrinsic value” of the money issued by states or central banks. Over time, the Libra Association, which was founded by Facebook, gained some well-known members such as the credit card company Visa. PayPal also showed interest for a long time, but has since decided on its own approach to entering the growth market of cryptocurrencies.
The Libra partners were to invest up to ten billion US dollars in the project. In particular, the difficulties in connection with the issue of regulation repeatedly caused complications and delays for Libra.
Bitcoin Remains by Far the most Important Cryptocurrency
Despite all the other activities of many companies on a private sector basis, it is and remains Bitcoin that continues to attract institutional investors and private investors as an industry pioneer. The Bitcoin system now has a market capitalization of more than 350 billion US dollars. This gives the first blockchain a multiple of the value of large leading banking houses such as Deutsche Bank. For comparison: The privacy coin Monero, which is described by many as a darknet currency (we mentioned it earlier), currently (as of December 4, 2020) has a market capitalization of only around 2.3 billion USD. The allegedly great danger of this currency, which opponents of digital currencies like to cite in connection with the anonymity of the system, is put into perspective in view of the current data.
Is the Hoped-For Crypto Turnaround Coming with the New US President?
What is an obvious advantage for one is seen as a disadvantage by others – the decentralized function of digital currency systems. States fear a loss of control because they cannot control the systems. It is obvious that a privatization of the global monetary and financial economy is not without risks. The USA or the new Biden government is currently expressing considerations that suggest that there could soon be far-reaching crypto regulation during the new president’s term of office. After all, Biden’s team includes not only the aforementioned former CFTC chief Gensler, but also financial experts such as former FED chair Janet Yellen. Nevertheless, a kind of conflict is emerging. US politics continues to see Bitcoin and other cryptocurrencies as an area that could harm the dominance of the US dollar as the world’s leading currency.
People in Economically Burdened Countries are Particularly Open
To pick up on Facebook’s approach again at the end: The statistic mentioned above shows that the company has understood one thing, despite all the justified criticism. There is a need for alternative systems. In countries with weak banking systems and infrastructural problems, an above-average number of people already appreciate cryptocurrencies. Nigeria, the African country, took first place by a wide margin. There, 32 percent of the citizens surveyed stated that they own and/or use digital currencies. Vietnam took second place with 21 percent, while South Africa made it into the top 3 with a share of 17 percent.
In Turkey, the value was 16 percent. This also shows that people in countries with economic worries are looking for alternatives and are also using them. Turkey has been suffering from years of increasing devaluation. The situation is similar in Peru in South America.
How Far could Countries Still Exert Influence?
When it comes to the question of state regulation and bans, the consideration must always be how far politics can intervene at all. Because the much-criticized decentralization ensures that states can threaten companies with legal action. However, it is hardly possible that the systems themselves are threatened. Because here the community of users who interact via blockchain and digital wallets dominates. In the end, the question also arises as to whether countries like the USA are not harming themselves if they block themselves off from the new technologies. Because with Switzerland (keyword “Crypto Valley”) and a number of countries in Asia, there are increasingly regions that are welcoming the crypto world with open arms.
Planning to get started with cryptocurrencies? Our Guide explains it.
