“The mother of all bubbles” is bursting, claims Nouriel Roubini, the economist and chairman of Roubini Macro Associates[1]. Having reached a few dollars short of $20,000 just before Christmas, the value of Bitcoin fell to $8500 by mid-February, creating a frenzy of attention, and is back up to $1200 in 24 hours as of March 12. Every month we are bombared with the rise and fall of crypto assets, not just bitcoin. This month we saw a sudden drop in the value of Ethereum to less that $700, having hit over $1300 at the beginning of the year. These drops are a sign, perhaps, that the so-called cryptocurrency mania is dying down? Far from it.
Here at Lendingblock, our view of the crypto-economy is clear: what we are seeing is a sign of a market that is maturing, not imploding. The broader crypto-economy has in fact never been healthier. Already, 2018 has seen more businesses investing in more crypto-technology projects than ever before. We believe cryptocurrency is here to stay.
Just before Christmas, America’s Akuna Capital, which already trades futures across energy, agricultural commodities, currencies, and metals, launched the world’s first Bitcoin futures contract, on the Chicago Board Options Exchange. Rival exchange, CME followed suit, and by early February was seeing trading volumes averaging around 1,000 contracts a day!
Many governments too are mulling their cryptocurrency options. Venezuela has already launched its own cryptocurrency, the Petro, and has announced that a range of services and goods—from aviation fuel to fees charged in embassies—can be paid in virtual currencies.
Despite this increasing adoption, the massive fluctuations we’ve seen in the value of cryptocurrencies has been a major point of contention for the future of crypto. The volatility has created uncertainty, but investors have seen these patterns before.[2] And of course, Stock markets are not immune: they also fluctuate up and down; exchange rates fluctuate up and down; commodity prices fluctuate up and down. Investment in cryptocurrencies is like any other high risk investment – for traders there are risks, but also opportunities for huge rewards. So, to describe the crypto-economy as bursting or crashing when the market heads downwards, is, in our view, not only premature, but misguided.
Moreover, cryptocurrency trading offers investors both opportunity, and diversification. Opportunity for skilled investors to execute trading strategies designed to capitalise on the volatility, and diversification through exposure to a new asset class that is highly liquid. Cryptocurrencies have an advantage over ‘stickier’ assets such as commercial property, land, and physical infrastructure. It’s no surprise that investment banking behemoth, Goldman Sachs is already providing services for clients trading in Bitcoin derivatives.[3]
And beyond purely the world of cryptocurrencies, the mistake that the doom-sayers are making, we think, lies in failing to see the transformational nature of the distributed ledger technology that underpins both cryptocurrencies and the broader crypto-economy.
Blockchain-driven distributed ledgers are a fundamentally new and innovative way of recording transactions in a secure and tamper-proof form. Held on multiple computers as a huge distributed database, a blockchain ledger cannot be falsified, because of the impossibility of changing every distributed record and its associated hash-encoding at the same time. Consequently, blockchain technology enforces consistency: everyone is looking at exactly the same data, irrespective of which computers it is stored on.
Use of distributed ledger is becoming ever more prevalent. American retailer Walmart, for instance, is using blockchain-based distributed ledgers to track products in its supply chains. Computing giant IBM has recommended the use of distributed ledger technology to the government of the Canadian province of British Columbia, ensuring consumer safety and regulatory oversight when the non-medical use of cannabis is shortly legalised. And hi-tech start-up Everledger maintains a global digital registry of over a million diamonds, using distributed ledger technology to encrypt over 40 distinct features of each diamond on its journey from the diamond mine to the jeweller’s shop.
The broader crypto-economy, based around this secure distributed ledger technology looks set for continued growth. Here at Lendingblock, we’re confident that such applications are the tip of the iceberg, and that many more will emerge in the months and years ahead—a view given added impetus by the strong flow of Initial Coin Offerings that are coming to market; last year saw 706 ICOs and almost $5billion funds raised. [4]
And what of cryptocurrencies themselves? Here too, we’re sanguine. What’s at issue, we feel, is not whether cryptocurrencies are viable, but at what level their prices reach a normal trading range. As we wait for this to happen, we can see the fundamental value of the technologies that underpin the crypto-economy being realised. And over the next 24 months we’ll see it delivering real value to the market. The compelling logic of blockchain-driven distributed ledgers will continue to attract businesses to their use, and as we see blockchain flourish and cryptocurrencies stabilise, we can be sure the crypto-economy will continue to mature. The bubble isn’t bursting, it’s growing up.
About The Author
Linda Wang is Co-Founder and COO of Lendingblock, the first cross-chain securities lending platform for the cryptocurrency. With extensive experience in blockchain technologies and an Entrepreneur First graduate, Linda and the Lendingblock team are seeking to transform the industry and bring traditional investment methods to the crypto-world by providing the infrastructure to do so. Lendingblock are running an ICO on 23rd March, if you’re interested in finding out more about the platform or joining the ICO, find more here.