There has certainly been a lot of hype around crypto currencies over the past year; we saw Bitcoin break the $1,000 level, then toy with the price of Gold for a while and with a small correction that would attract more buyers we then watched price sail into $5,000 levels!
If you were lucky enough to be among the earliest adopters of Bitcoin back in 2009, you could have purchased 5,000 coins for a mere $27 United States Dollars. And at the peak of the currency's valuation this year, that would have transformed a $27 initial investment into an eye watering $2.5m inside of just 7 years! That's an insane ROI, a 7 digit one in fact! (9,259,159%)
With those kind of numbers it's easy to see why there has been so much hype surrounding Bitcoin and yet, when I speak to the average person about it, it seems as though they have either never heard it, or they are aware of it but don't really "get it".
So what really is the point in Crypto's anyway? Well, the point is actually something rather admirable and Bitcoin delivers a rather upbeat mission statement claiming that their technology will work to solve some of the biggest problems within the financial industry today. They state:
- Fiat currency (that is, currency that has no intrinsic value and is not backed by anything tangible) is a terrible store of value for it can simply be printed by central banks, lowering the value of your accumulated wealth due to increased supply.
- The economic environment today, is fiercely geared towards spending, encourages debt and discourages savings (taking out loans allows banks to print more money via the fractional reserve system, effectively making everyone poorer).
- To empower the 2.1bn people who live in poverty and are not currently able to be serviced by traditional financial services, particularly banking. (Those are people earning less than $3.10/day).
- Costs of electronic transactions are still too high for many. 85% of all transaction in the world are still conducted with cash.
- Traditional banking and payment systems are not secure.
- Trust within the banking sector is also at an all time low.
Reading between the lines, it seems that cryptos then are like digitally crafted "up-middle-fingers" aimed directly at the financial establishment and up to this point, the establishment seems to have largely been ignoring it.
That is until a few weeks back, when a highly animated Jamie Dimon (JP Morgan, CEO) came out on CNBC and shouted Bitcoin down, claiming it a fraud and heralding a crypto armageddon. He argued that governments and central banks would in the end produce legislation/regulation that would eventually render the currency obsolete.
Soon after that, someone with a sense of humour, produced this fully accurate meme:
Of course, like the meme, many have commented that Mr. Dimon simply wanted to get in at a better price, while others dismiss his argument entirely, claiming that he simply lacks understanding of the blockchain technology altogether. Whatever you believe to be true, one thing remains certain, and that is that crypto currencies are no longer flying under the radar of major financial institutions.
The Bank of International Settlements based in Switzerland released a publication last month, in which they revealed they were actively working on decisions to implement their own 'Central Bank Crypto Currency' or CBCC, for use within consumer markets. Attributes for the currency are still being defined but it appears that they are even toying with the idea of providing anonymous peer to peer payment capabilities, despite concerns over 'illicit' uses that this typically invites.
It seems to me then, that as central banks adopt this technology for their very own systems, the demand for decentralisation will be rigorously tested. If they can find a way to retain all of the advantages of Bitcoin while remaining centralised, then it stands to reason that Bitcoin will most likely become obsolete within the next few years (if not already).
Obviously, that will not spell the end of Crypto's, but it could spell an end to Crypto's as we know them as they become thrusted by the winds of mainstream on a course set for irony, and their technologies cannibalised by the very institutions they were so destined to replace...
Nah! Just kidding!
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Jamie Dimon CNBC Video: