Cryptocurrency: what future for the virtual currency?

 While cryptocurrencies are still exciting investors who follow the impetuous prices of virtual currencies, but also entrepreneurs and the world of venture capital are starting to turn massively to ICOs, the individual also informs and trains on this subject oh so trendy and revolutionary.

Cryptocurrencies still seem to have a bright future ahead of them. But is this really the case? Café de la Bourse offers you an overview of the probable scenarios surrounding crypto-currencies. Currency of the future or the biggest financial crash in history, it's up to you to make up your mind about the future of cryptocurrencies.

Virtual currency: future biggest stock market crash in history

First, a possible scenario is crypto-currencies gain ground before disappearing in a monumental fiasco, generated by the explosion of a colossal bubble. Only geeks and anti-banking activists continue to use cryptocurrency, as in its early days.

The risks of cryptocurrency are immense

The Compagnie des CGPI in an email published on November 6, 2017, where it indicates its refusal to "participate in the consultation for specific regulation on Initial Coin Offerings and the Unicorn program" (in other words, on Bitcoin and other crypto-currencies), launched by the Autorité des marchés financiers (AMF) at the end of October [2017], warns about the risks associated with Bitcoin and other cryptocurrencies.

We can also add to this the risks pointed out by the CEO of JP Morgan who, in the midst of the bubble, at the end of 2017, called Bitcoin the biggest scam in history: "its value is not based on any real asset and its exchange rate does not represent the value of an economy or purchasing power parity". It should also be remembered that a large part of all Bitcoins in circulation is held by only a few users. There is therefore a very high concentration of tokens on a few addresses and we can therefore understand the concerns that are being created around the Bitcoin price. If this is just about Bitcoin, it is clear that many crypto-currencies present the same risks.

The company of IFAs, through the voice of its Honorary President Jean-Pierre Rondeau, had shown determination at the end of 2017: "It, therefore, seems that it is too early to launch a regulation on a product that even the regulators do not know," continues the association, which concludes That it does now no longer want "to take part on this incomprehensible energetic or passive complicity of worldwide public government via way of means of lending itself to a semblance of regulation that can only deceive investors as to products that prepare the next biggest financial crash in history," says the professional association of CIF, which continues: "Crypto-currencies, of which Bitcoin is the best known, will be the biggest financial scandal of the years to come."

Result: in early 2020, even if the AMF has provided a framework for service providers on digital assets (PSAN), there is to date, according to our information, no provider has obtained the approval of the AMF. As for investing in cryptocurrencies, it must be done alone. No wealth management advisor will risk advising you on these assets which are not, in the eyes of the AMF, considered miscellaneous goods.

Abusive speculation marks the end of the cryptocurrency

Indeed, the speculation whose intensity was noted with horror in 2017-2018 could start again and even intensify, thus triggering a monumental crash. Already today, apart from hackers specializing in ransomware or traffickers who want to move capital out of traditional channels or launder dirty money, the majority of crypto-currency buyers invest in virtual currencies in the hope of reselling them at a higher price to another person, without caring about the real value of this asset. This is called speculation.

The 80 American hedge funds that, in 2017, specialized in crypto-currencies in order to take advantage of their high volatility while the latter has deserted most major financial markets have understood this. They also appreciate that these new currencies have very little correlation with and influence from traditional markets. That was all it took for the players in the finance sector to invest in cryptocurrencies. We can already note that the Chicago Mercantile Exchange Group, an exchange specializing in rate and currency futures among other things, has announced the upcoming launch of a Bitcoin futures contract. The U.S. is thus officially allowing speculation in the most famous of crypto-currencies.

Bitcoin, the first of the crypto-currencies created by Satoshi Nakamoto, is now a major currency. And anyone can now invest in Bitcoin, but also in many other cryptocurrencies: traders, institutions, banks, and individuals who can directly buy a cryptocurrency and keep it in a portfolio or bet on a virtual currency through a derivative product on a cryptocurrency offered by a stock broker. And it is even possible to trade these highly volatile currencies with a leverage effect, which further increases the volatility of prices, with users who are less and less expert, to whom the risks and the product escape more and more.

Cryptocurrencies live on and become established in certain sectors only

This second scenario assumes that cryptocurrencies will continue to coexist with traditional currencies, governed by the major central banks, but will not take off as expected.

Virtual currencies penalized by central bank regulation

Many factors work against cryptocurrencies. First, their primary characteristic: they are not governed and regulated by a central bank. This is both an advantage and a disadvantage. But the advantage is not expected to last long. Indeed, if Bitcoin or any other cryptocurrency starts to take on too much importance, states, central banks, and financial institutions will intervene to regulate it and thus make it lose all its interest.

And on the downside, the lack of regulation is undoubtedly at the root of the sulfurous reputation of cryptocurrencies. A negative image that is not easy to forget and which should remain a disadvantage even in case of regulation. It must be said that the first uses of virtual currencies have been illegal, to say the least: arms, drugs, and human trafficking. Faced with this black picture, several countries have launched a major offensive against cryptocurrencies, like China, which is closing all Bitcoin exchanges and banning ICOs on the grounds of fighting money laundering and tax evasion.

Cybercrime and scams: cryptocurrencies in the spotlight

One also thinks of the many cases of piracy that still tarnish the image of cryptocurrencies which, despite a technology that makes them impossible to counterfeit (the famous blockchain), still struggle to impose themselves in the minds of the common man as a safe and tamper-proof solution. Perhaps because the notion of "over-the-counter on the Internet" is too associated with the idea of piracy and illegality? The fact remains that piracy remains one of the major problems of crypto-currencies. The Ethereum corresponding to 30 million dollars stolen in July 2017 because of flaws in the security of websites offering wallets has marked the minds. And so much worse if there has never been any hacking related to the protocol itself, whether on Ethereum or on Bitcoin, because of the Blockchain technology, eminently reliable and unbreakable. Indeed, while Bitcoin and other cryptocurrencies seem impossible to hack, they are nonetheless vulnerable to major risks such as wallet theft or scams.

The appearance of forks could harm the stability of the cryptocurrency

Another negative point of crypto-currencies that could hinder their development: is forks of all kinds and creations. Duplications of Bitcoin are starting to multiply. There was Bitcoin, then Bitcoin XT, Bitcoin Classic, then Bitcoin Unlimited, Bitcoin Cash, and Bitcoin Gold. Ethereum is not left out and also undergoes Fork (a split takes place and a new currency is created from the technology of the old one), which makes us say that well-established and relatively old cryptocurrencies are not immune to changes either. It's also worth bearing in mind that new crypto-currencies emerge regularly, with varying degrees of success. In short, it's a rapidly changing industry, where the lines are constantly moving, and this glaring lack of stability can be detrimental to the growth of virtual currencies, or at least to those who wish to invest in them.

Crypto-currencies are not green enough to break through

Cryptocurrencies are particularly energy intensive and although this may seem anecdotal, it is, without a doubt, a point that could slow down the development of cryptocurrencies. Just think that each Bitcoin transaction requires as many kilowatt hours as an American household does in a week. According to the Digiconomist, the Bitcoin protocol and computing infrastructure consume a total of more than 26 terawatt hours of electricity per year or 26 trillion watt-hours. And the energy consumed in one year by Bitcoin could power 2.35 million U.S. homes. So of course, Bitcoin technology is relatively outdated compared to other cryptocurrencies like Litecoin, Ethereum, or Ripple. Bitcoin transactions take a long time to be validated and are particularly energy intensive. Nevertheless! For now, it is very difficult to imagine the widespread use of crypto-currency in the near future.

Virtual currencies very useful in certain segments of the economy

Even if, in this scenario, cryptocurrencies remain in the shadow of traditional currencies and remain niche currencies used by geeks, it should not be forgotten that crypto assets could nevertheless make a good living in certain areas. Thus, crypto assets could well impose themselves in certain sectors where they will prove to be very useful and in particular in finance where ICOs will continue to allow to raise funds and the digital assets of the Blockchain, through smart contracts, will facilitate the distribution of dividends and other operations on securities.

Cryptocurrency replaces current currencies

"At present, digital currencies like Bitcoin do now no longer pose a risk to the prevailing order of fiat currencies and crucial banks. Why? Because they are too volatile, too risky, and too energy-intensive because the underlying technologies are not scalable enough, many are too opaque to regulators and some have been hacked. But many of these flaws are just technological challenges that could be overcome over time."

Those were the opening words of Christine Lagarde's speech at the Independence 20 Years conference hosted by the Bank of England in September 2017. And then she added "Citizens may one day prefer virtual currencies" ("Citizens may one day prefer crypto-currencies" in French).

Will crypto-currencies one day replace our current currencies? Some elements point in that direction. Discover in this scenario, our overview of events and concrete facts that show that virtual currencies could very quickly gain ground... until they take over the whole world?

States take over crypto-currencies

While the particularity of crypto-currencies like Ripple but also Bitcoin, Ether, Litecoin, and all other crypto-currencies is to operate independently of any central bank, the game could well change. Legislators are accompanying the development of virtual currencies. We are further and further away from the initial model without any rules of the beginning of Bitcoin. Japan has already passed a law standardizing and regulating these digital currencies like BTC and XRP 10. In the United States, the SEC has ruled: tokens (units of crypto-currencies) are real digital assets akin to stocks and must therefore be subject to the regulatory framework in place in the United States on this type of product.

But it can and should go even further!

Vladimir Putin has just announced the upcoming issuance of the CryptoRuble. An initiative that is in line with the conclusions of the latest study on new virtual currencies of the Bank for International Settlements (BIS). According to her, it is unlikely that existing crypto-currencies will ever replace traditional currencies, but she considers it "essential that central banks, guarantors of the printing and circulation of currencies, study the possibility of issuing their own cryptocurrency". Several countries are taking this route, including Sweden, where cash transactions now account for only 2% of the total amount of financial exchanges and which is therefore concerned about the risks associated with the disappearance of cash in the event of a financial crisis. As a result, the Swedish central bank has decided to develop a virtual currency project, the eKrona, which would provide the general public with digital currency directly from the central bank.

In Japan, where cash is used in the majority of transactions (approximately 70% of exchanges compared to an average of 30% in other developed countries), in order to reduce the cost of this situation for companies and the State, several Japanese banks have launched a joint virtual currency project to develop their mobile payment offer, which has received the support of the Japanese central bank.

It is clear that the advent of digital and decentralized national currencies, such as a "digital euro" issued by the European Central Bank, is on the agenda. Moreover, the Bank of France has announced the experimentation, as early as 2020, of a Central Bank Digital Currency (CBDC), a first in Europe! But it is actually an experiment that should be considered in the study of a possible e-euro, a European virtual currency called for by Christine Lagarde, President of the European Central Bank.

The global success of virtual currency among individuals

Individuals are adopting crypto-currencies. We can note that currently, bank automats are flourishing everywhere like in the Netherlands which allows the transformation of bills and coins into Bitcoin and vice versa. The crypto-currency revolution seems to be well underway!

It is therefore quite possible that the whole population will use crypto-currencies to pay for their purchases in everyday life, but they could also use Blockchain technology for all sorts of everyday applications such as recording transactions and proving real estate ownership, acting as a receipt at the supermarket and saving paper, recording medical history, etc.

All our information is, by nature, generic. It does not take into account your personal situation and does not constitute in any way personalized recommendations for transactions, nor does it constitute financial investment advice, nor does it encourage you to buy or sell financial instruments. The reader is solely responsible for the use of the information provided, without any recourse against the publishing company of being possible. The publishing company of cannot be held responsible for any error, omission, or inappropriate investment.

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