Is Cryptocurrency Dangerous for Global Financial System?

Crypto Issues / Monday, March 19th, 2018

Since the emergence of the first cryptocurrency, Bitcoin (BTC) in 2008, financial advisors all over the world try to get their minds around its potential impact on the global finance and economy. The main question here, is cryptocurrency a threat to the world’s financial system? While the plain yes/no can hardly be a good answer, it is clear that crypto will certainly make things more complex, at least, before it gets properly regulated.

While the majority of experts lean towards the opinion of cryptocurrency being safe for the global finance, there are some facts to consider.

  1. Money laundering tool. Allowing to make transactions and turn BTC into a fiat money anonymously attracted a lot a criminal elements. They say cryptocurrencies were created for this very purpose but we’ll never know.
  2. Low liquidity. While this does not refer to cryptocurrency king, BTC, there are much more other, least successful currencies. For example, Ripple, Ethereum, Litecoin are also quite popular among investors, yet, not so easy to cash out.
  3. Sustainability issues. Bitcoin mining consumes a lot of energy. Only in one year, bitcoin mining consumed a much electricity as it is annually used by 159 nations.
  4. Bubble. Remembering the economic crisis of 2008 with real estate bubbles that pull the whole national economy into the abyss, many afraid that today’s bitcoin rash may turn out exactly the same.

It does not mean it is bad to invest in cryptocurrencies. However, not only in them. Portfolio diversification is a reliable method used by investors from the dawn of time, and it is surely to work out well with such volatile assets as cryptocurrencies.

Bitcoin in Global Finance

Many people are sure that in the nearest future, what we know today as money will disappear. Instead, we will pay for goods and services from our digital accounts with digital assets. Still, sceptics do not envision such an utopian future for the cryptocurrencies. It has limited ability to play the role money emissioned by central banks because of the complexity in its regulation, decentralization, and energy-consuming mining. Also, the number of bitcoins is limited, which makes it impossible to issue more of them. In the long run, it can result in all the global wealth being located in the hands of a small group of people – BTC owners.

No matter what, it is too early to put hopes concerning cryptocurrencies too high. People who spend all their savings to buy cryptocurrencies or overpriced equipment for its mining do face certain risks. With recent price fluctuations that result in 99 cryptocurrencies out of 100 to face the decline, the warning statements are especially relevant. Crypto market is one of the most volatile ones, which is another factor to not believe that cryptocurrencies will turn into something stable and reliable in the future.