UNITED STATES (VOP TODAY NEWS) — Strangely enough, but the most volatile tool on the market – the cryptocurrency – acts as a means of protecting assets for the Chinese. That is why the course of Bitcoin grew all 2017 and took off a couple of weeks ago. How much longer can its growth last?
From April 1 to May 16, 2019, the price of the main cryptocurrency – Bitcoin – has grown by almost 100%, from $ 4,100 to $ 8,300. This forced many to recall the impressive rally in 2017, when the value of the “coin” increased from $ 990 to $ 19,600.
After the correction in 2018, during which all progress was lost almost as rapidly as it was recruited, the public split into two camps: skeptics that put an end to the prospects of cryptocurrency, and loyal supporters, who continue to talk about the inevitability of the moment when for 1 Bitcoin will give $ 50,000 or even $ 100,000.
What are the reasons for the increase in Bitcoin volatility? And what are the overall prospects for cryptocurrency?
The answer is in Chinese
The key to unlocking the growth in demand for bitcoin, in our opinion, is in China. The fact is that for several years now the country’s leadership has been actively fighting the withdrawal of capital abroad. Chinese citizens are getting rich fast.
At the same time, they choose foreign assets, which are attractive for them not so much in the sense of diversification of investments and additional profits, but in terms of calm and the possibility of avoiding excessive control by local regulators.
The most acute phase of restrictions from the Chinese authorities came precisely at the beginning of 2017. From that moment on, it became necessary to provide additional information on the origin of the funds and the intended purpose of spending, including by providing supporting documents.
There was also a restrictive quota, according to which it was possible to purchase no more than $ 50,000 a year. Beijing’s special control was aimed at large investments of corporations and individuals. After the measures taken during 2017, there was an active strengthening of the Chinese yuan against the dollar, from 6.95 to 6.25 yuan to the dollar by February 2018.
Buying dollars became difficult and inconvenient, and the flow of funds rushed towards the cryptocurrency. The demand from Chinese citizens was, of course, not the only reason for the growth of cryptocurrency, but it was definitely crucial at the initial stage of the growth rate.
It was the latest increase in control by the Chinese authorities that, several weeks ago, spurred a new wave of demand for Bitcoin.
A local edition of the South China Morning Post reported earlier that citizens can no longer receive more than $ 3,000 in cash at the bank without presenting documents confirming the need for currency. It is logical that each tightening of the conversion rules turns into a shadow, that is, into cryptocurrencies.
Bitcoin does act as a hedge. Tracking transaction details and owners of funds is almost impossible. On the one hand, it can be useful in some situations, on the other hand, it creates fertile ground for hiding incomes, avoiding taxes and engaging in illegal trade.
In this sense, the issue of regulation of cryptocurrency is the cornerstone. For full recognition and widespread practical application of such regulation is necessary, but it is difficult to implement and, moreover, one of the key arguments of supporters of digital coins will break – the idea of decentralization and anonymity.
Can be understood and the authorities of China. The country faces an ambitious task – to maintain high rates of economic growth, at the same time raising the standard of living and the well-being of citizens.
After the economic slowdown in 2018, against the background of aggravated trade relations with the United States, many incentive measures were taken, most of which imply an increase in government spending in order to maintain consumption.
But the effectiveness of such decisions will inevitably decline in the face of capital outflows. Therefore, China is trying in every way to limit the scope of cryptocurrency – something that is most difficult to control.
In 2017, the authorities banned ICO – the initial attraction of funds for the project through the release of tokens, similar in concept to the traditional IPO for stock exchanges, but in fact unregulated.
This idea seems quite reasonable, given that the vast majority of ICO did not go beyond fundraising and did not provide the final product, but almost no country was so active in this direction.
The next step of official China was the pressure on cryptocurrency exchanges. Their activities were also outlawed by the directive of the People’s Bank. As a result, companies were forced to re-register abroad in more loyal jurisdictions.
However, these steps of the authorities can hardly be considered effective – interest in cryptocurrency has not fallen, moreover, the technical possibility of trading them has remained.
The most radical step that has not yet been used, but is a strong fear for the crypto community, is the potential ban on mining cryptocurrencies in China. It is no secret that it is precisely there that record powers are concentrated for “mining”. To date, these concerns have not been realized, but the risk remains.
What are cryptocurrencies
The prospects for cryptocurrency in general, in our opinion, remain hazy, despite the restoration of positions in recent weeks. The main arguments of skeptics deserve attention.
According to Bitcoin graphics and any other cryptocurrencies, it is obvious that this was a “financial bubble” that was blown away throughout 2018.
Now the key question is how to estimate the fair fundamental value of cryptocurrencies without taking into account the subjective assumptions about their future benefits and abstracting from the fact that this is just some kind of tool that can bring hundreds of percent of profitability in a couple of weeks, and maybe the same losses.
There are a wide range of tools for evaluating national currencies, stocks and bonds of companies. First of all, this is the fact that a certain asset / liability that generates cash flow (stocks or bonds), or a country with its economy, foreign trade, consumption and the policies of the Central Bank, is behind the instrument.
In the situation with cryptocurrencies, everything is different. We see the successful use of blockchain technology for selective commercial needs, which is difficult to estimate in the context of the cost of cryptocurrencies. We also see interest in cryptocurrencies, which is reinforced either by the desire to get away from the local regulator, or by the desire to earn quickly and a lot. Does any of this have a fundamental value?
Currently, cryptocurrencies are used very little for settlements, and this is the main purpose of the payment instrument. The trend is easily explained: the vast majority of cryptocurrency holders receive income with national money, dollars, euros or yuan.
Together with the volatility of “digital coins”, this makes calculations in them impossible, since the value of goods in dollars in a couple of weeks can change by tens of percent.
Recently, many myths about cryptocurrencies have been dispelled, including a limited number of bitcoins (due to branches from the main chain, the so-called forks, the number of coins multiplies), decentralization (in fact, trading takes place through centralized exchanges, and cryptocurrency creators can influence on their fate) and many others.
However, these arguments do not stop those who want to get a return that is several times higher than the yield of classic investment instruments. The desire of some people to divert their savings into the shadows will probably also not go anywhere.
In addition, in the hands of the creators and first followers of cryptocurrency is a disproportionate number of coins, that is, there is an opportunity for price manipulations, so do not exclude further growth of Bitcoin. However, in terms of risk, such investments are absolutely incommensurable with traditional financial assets.
This article is written and prepared by our foreign editors writing for VOP from different countries around the world – edited and published by VOP staff in our newsroom.
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