Cryptocurrency is one of the new additions to financial assets in the past decade. It has grown in popularity, function, and available currencies. It is a digital currency used for transactions and in some circles is a speculative asset. But why is a once dismissed decentralised currency that was the dream of anarchists now drawing the attention on investment banks?
The most well-known and valuable cryptocurrency is Bitcoin (BTC), and it had its beginnings on the Silk Road. The Silk Road was an online black market where illegal goods and services were sold, because of the nefarious activities’ users elected to use Bitcoin as their currency.
Bitcoin is an easy way to launder money and to transfer funds through its encrypted blockchain ledger. In short, criminals use anonymising services to protect the origins of their funds once converted, availing peer to peer and using multiple addresses. Some services provide crypto laundering. Similar in the way of offshore bank accounts and how they turn money clean.
While Bitcoin is still used for illegal activities all fiat currencies are used similarly for black market transactions. Bitcoin amounts for $829 million of dark web transactions. At the same time, fiat dollars account for $10 Trillion of funds on the black market. So, Bitcoin has gotten unfair flack of its criminal use, unlike everyday tender. But this draws the conclusion it is not legal tender, or that it was not. In most Western nations, Bitcoin is now legal.
Legal as a virtual asset and as a commodity. In Ireland, Bitcoin is legal and is unregulated by the Central bank of Ireland, naturally. In the last months of 2020 and the early weeks of January of 2021 Bitcoin saw another surge in price value. On crypto markets, it was being speculated of an increase in value, all to varying degrees.
The more interesting change is that Bitcoin and other cryptocurrencies are not just a dream of basement anarchists for decentralised currencies, as major investment banks are beginning to swoop in.
JP Morgan in 2017 labelled bitcoin as a fraud with its highly violate price. But in 2020, it recognised its value as an alternative currency, like that of Gold and a way to protect money from inflation. Their Global Quantitative and Derivatives Strategy noted that as millennials play a winder role of being investors, their market investments will play a role in what is accepted. Additionally, PayPal, a longstanding opponent of cryptocurrencies, announced it would allow its users to buy and spend bitcoin along with some other cryptocurrencies as forms of payment. Making it a form of legal tender
During the pandemic, cash transactions were discouraged, and digital card transactions promoted. This led to less cash use and banks realising a market opening for adopting digital currencies, whether launching their coin our using blockchain technology for their banking ledger system.
The Central bank of China has already begun testing a digital Yuan. While investment banks are now allowing traders to purchase and invest in cryptocurrencies, it is worth knowing some of the opponents of digital currencies are Central Banks.
While cryptocurrencies are largely decentralised and their currency production finite, central banks are the opposite. Centrally planning currencies, Central Banks hold a monopoly of legal tender within nations. Digital currencies pose their biggest challenge as we are experiencing a move away from cash transactions. To add the threat, they challenge Central Bank’s market dominance as well as retails banks. Profits and trust are also being at stake.
With the pandemic at play, major retail investors are recording record-breaking sales figures with BTCE recording €57million a day for the first two weeks of January. Many are paying close attention, with the ECB calling for a complete regulation of crypto to combat their use in illegal activities; it is worth thinking if the big banks and some of the politicians have it wrong.
Maybe digital currencies are forcing some financial sectors that have not fully recovered to act. Maybe those same financial institutions are not as market effective as they would like to believe. JPMorgan noted that the new investors that are maturing are millennial and younger, all tech-loving a savvy. They are slowly but surely forcing a market change as they will eventually control the world’s market share of wealth.