Toronto: Is Cryptocurrency Dream Busted? Rick Falkvinge, the leading Swedish Cryptocurrency protagonist and one of the world’s top 20 Internet freedom fighters, said in the recent past that Bitcoin would do to the bank what the email did to the post office. The forecast proved quite distant from reality. The unfolding situation in the financial markets reveals the opposite. Cryptocurrency has lost $ 1.0 trillion in value, whereas banks thrive. The monetary policy initiatives in terms of hike in the interest rates are helping the banks improve the Net Interest Margins ( NIM) as the transmission of increase in the cost of funds has been passed on immediately. The deposit interest rates shall take time to go up.
Cryptocurrency’s uncertainty nullifies the misplaced optimism in its future appeal. Despite losing $ 2.0 trillion worth of savings to the Bitcoin family, the banks march forward while the Crypto slide continues unabated. Out of 8500 varieties, more than 500 have become junk losing entire weight and value. Fortunately, Bitcoin is not approved legal security; Banks, therefore, shunned it as collateral and saved losses.
People who put their hard-earned savings into a tumbling cryptocurrency regret they did not realise that it was bound to fail. Most are already profoundly underwater: Their investments are worth less than they invested. The loss in asset value from the cryptocurrency markets will impact global economies. The ongoing sell-off has established that Cryptocurrencies are not a hedge against inflation or secured as gold despite being in limited supply. As inflation has climbed, the Crypto market is taking the worst beating. The best-known crypto-token, Bitcoin, is trading down at $ 23000 from a peak of $69,000 in November 2021. The Central American country, El Salvador, where bitcoin is legal tender, recently lost $40 million, enough for the struggling government to redeem its next bond payment.
Crypto assets are risk assets; they’re not stable assets, not stores of value, and non-stability has resulted in a general market sell-off. As the Cryptos are not an inflation hedge, a significant justification for holding them may have disappeared. As a risk asset, not money or an innate store of value, Crypto has become more like tech stocks, falling as inflation and interest rates rise. Sharper declines have led to forced sales, and some of the cryptocurrencies have dropped to zero.
In 2021 crypto investments growth was certainly eyewatering. According to The Economist magazine, the global value of crypto assets was USD 2.5 trillion at the end of 2021, a dozen times increase since early 2020. In the case of India, 18 per cent of the ultra-wealthy have invested in crypto assets. Commoners could not afford the luxury of investing and have survived the decimating impact of the fall in their value. There are no tears shed on the macabre of Bitcoins, which was positioned as the third-largest currency after US$ & Euro.
The American Bankers Association (ABA) monitors the biggest market of Cryptocurrency worldwide. It had suggested that banks may enter into partnerships with crypto firms due to the increased profitability and client interest. Five categories of Crypto assets were found worthwhile for investment by banks: Cryptocurrencies, Stablecoins, Central bank digital currencies, Non-fungible tokens and Decentralized Finance (DeFi). However, the devastation in Crypto markets has proved the segment as a mirage, placing it miles away from banks’ plans, as they deal in public money held for safe returns.
Cryptocurrency appears to be heading towards a bust as it carries no value of its own like the gold and fails to withstand the testing times in the economy.
– Hargovind Sachdev
