Do Cryptocurrencies Affect the Global Market?
August 1, 2018 (Investorideas.com Newswire) Despite having a lot of similarities with stock commodities, cryptocurrencies have amassed a wide following within a short time span. In 2016 and before, stock market products, shares, and other conventional forms of assets were the cocks that ruled the investment roost.
To the surprise of investing legends like Warren Buffet, crypto assets suddenly toppled other markets and established themselves as the new golden geese. Currently, there are countless crypto millionaires and billionaires who believe that this nascent asset class will change the way financial markets work.
In 2017, the price of Bitcoin unpredictably went off the charts with an increase of over 2,000%. While none of the other cryptocurrencies were able to reach the $10,000 mark, most of them still recorded impressive performance. Stock market commodities, on the other hand, were able to record an improvement of between 15-30% during the same year.
Even the most precious products like gold and oil could not compete with crypto assets. As the demand for jewelry spikes, gold is predicted to sell as high as $1450 in the course of the year. Bitcoin, albeit not backed by a physical presence, has not gone under $5,000 amidst fears of the crypto bubble popping.
The one unique quality that makes cryptocurrency more profitable than stocks (albeit riskier) is the extreme volatility. Within hours or days, the price of a coin can go up by over 100% earning day traders good returns. Additionally, since there are no regulations, crypto assets are bound to increase in price as time goes by.
Traditional markets are seeking help from cryptocurrencies
As the crypto craze spread its wings, many small stores and several blue-chip companies have decided to alter their business model by incorporating cryptocurrencies. Take Longfin, for instance; when it absorbed Ziddu.com (a blockchain solution) and announced that it would be offering blockchain-based services, its stock increased 2000%.
After suffering catastrophic losses due to widespread production of camera-enhanced smartphones, Kodak too decided to take their services on a blockchain as a way to leverage the hype surrounding these volatile assets. Thanks to this move, the ailing Kodak stock tripled during the beginning of the year.
Other companies that moved to a blockchain or started a cryptocurrency program to improve their stock includes KFC Canada, Chantecleer (restaurant operator), Bioptix and many more.
The reason behind the cryptocurrency craze
Cryptocurrencies are easy to use, and this has made them the perfect alternative to fiat money. Take countries with degrading economies like Zimbabwe and Venezuela for instance, their currency's inflation is off the charts, and there are no signs of abating. Individuals from this countries are resorting to cryptocurrencies as a store of wealth since most of them have an inbuilt mechanism to deal with inflation.
Crypto assets come in handy in countries with strict capital controls and high taxes. You can easily part with thousands or millions in cross-border payments when you use government money, and if you are a business person, this definitely eats into your profits.
However, when you use cryptocurrencies, you can dodge all those hefty fees and get your product in time. Most crypto assets are anonymous, and therefore the transaction cannot be linked to you in case of a crackdown on tax evasion.
Crypto assets have made crowdfunding simple, faster and painless. Initially, entrepreneurs and developers had to spend countless hours trying to woo VCs and angel investors into putting up equity in their startups. Thankfully, through ICOs, start-ups are able to raise millions of dollars sometimes within 24 hours. All investors need to see is a life-changing idea, a whitepaper based on the idea, and a solid team.
However, the rise of scam ICOs has led to many countries placing tighter restrictions against them. China, for instance, banned all ICO-related activities from operating within their space.
Impact on global ventures
Inarguably, cryptocurrencies have streamlined how some financial markets work, controlled inflation and provided one of the few reliable ways to hedge against risk. Many investors have added them to their investment portfolios as a way to diversify.
Some experts feel that a crash in the cryptocurrency market can have adverse effects on the global market just like the way mortgage-backed securities caused a crisis in the global financial markets. Take the company like Eastman Kodak with stock in the stock markets, for instance. A crypto bubble would mean their stocks will plummet and the same misfortune will befall all other companies with ties to cryptocurrencies.
However, it's essential to note the total market cap of all cryptocurrencies still doesn't beat that of established corporations like Microsoft. Simply put, these assets cannot impact global markets to a great extent.
Ultimately, most investors view crypto assets as either a technology to shield one from inflation or a tool for speculation, but not something that can completely overhaul the current financial systems. The only thing about these assets that has the potential to change how global industries run is the blockchain-the technology that underpins them.
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