The popularity of crypto currencies have soared in recent years, and don’t show any signs of waning. However, questions about their future are mounting. According to some commercial finance experts, cryptocurrencies will continue to have a bright future for years to come, but is this really the case? The purpose of this article is to give you an overview of the different possible scenarios relating to crypto currencies, and the possible effects it will have on your business in 2020.
1) Scenario 1:
The weak development of cryptocurrencies
In this first scenario, cryptocurrencies do not replace traditional currencies. One of the main aims of the rise of this type of currency was to replace traditional currency but this now seems unlikely in many experts’ views, for the following reasons;
Penalization of the development of cryptocurrencies
The growth of cryptocurrencies is castigated by measures taken in many countries. So far, the negative connotations and connections people make with these new technologies (arms trafficking, purchase of illicit substances, etc.) has led to people distancing themselves from them. This has led at the same time to a massive rejection of the potential uses of the new crypto technologies by many countries. Governments around the world are making arrangements to block and limit the evolution of cryptocurrencies. These measures are similar to those currently taken by China, which decided to ban Initial Coin Offerings (ICOs) under the pretext of combating money laundering and tax evasion.
The proliferation of cyber attacks
According to Carbon Black, a company specialising in cybersecurity, more than 936 million euros of cryptocurrency have been stolen. Episodes of piracy platforms are multiplying and continue to tarnish the image of cryptocurrencies. As a result of this, individuals remain resistant to these new technologies. They consider these very uncertain and risky.
Cryptocurrencies consume too much energy
As you know, every cryptocurrency transaction requires the resolution of a mathematical equation (mining), a process that’s not “abcd.” With its complexity, the number of people trying to solve it is fluctuating. The harder the competition, the more computing power needed to find the solution. Estimated at more than 0.4% of global electricity consumption, the mining of cryptocurrencies continues to be singled out. In 2017, when Bitcoin was multiplied by 14, the energy consumption of mining was multiplied by 10. In a society waking up to the disastrous effects of global warming and attempting to limit carbon emissions, will rise the use of crypto currencies hard to square with the new energy saving agenda.
According to many predictions, Bitcoin was to be the new gold rush for the 21st century. Many also believed that Bitcoin would in the coming years compete with the price of precious metals. To give you an idea, the value of gold in circulation represents between 6000 and 8000 billion dollars against 118 billion dollars for the 17 million Bitcoins issued at the current price of $4,968.53. If the price of Bitcoin was to match the price of gold, the price of Bitcoin should be multiplied by more than 50, drastically increasing its electricity consumption. The use of cryptocurrencies in a generalised way in the near future still seems difficult to conceive.
2) Scenario 2:
Development of Cryptocurrencies
States seize cryptocurrencies
Even if some cryptocurrencies like Bitcoin or Ripple have been designed to operate independently of central banks, changes may emerge to this in the near future.
Take the example of Japan, which has already put in place a law for the regulation of certain currencies such as Bitcoin and XRP 10. In the United States, cryptocurrencies are considered as real assets (similar to equities). They are therefore subject to a specific regulatory framework.
Some countries such as Russia and Sweden believe that cryptocurrencies will never replace traditional currencies, but there is a belief that central banks will eventually have to launch their own virtual currencies. The central bank could also develop their own decentralized digital currency.
Individuals accept cryptocurrencies
Cryptocurrencies have finally managed to attract the largest number of individuals. These changes are already manifesting today. This can not only be seen through the increase in the number of funds raised (ICOs) for the creation of new cryptocurrencies, but also with the increase in the number of companies that accept virtual currencies.
The dawn of a stock market crash
The intensive speculation of cryptocurrencies
Many people are interested in cryptocurrencies because they believe that they will be at the root of profound economic, social, and technological changes. However, the majority of investors are turning to virtual currencies simply for speculation and quick wins.
Moreover, some big structures like the Chicago Mercantile Exchange (CME), one of the two major US futures markets, announced the appearance of future Bitcoin contracts. Financial giant, Goldman Sachs, has admitted that they will start trading Bitcoin financial products.
In a world where the biggest structures are starting to speculate on virtual currencies, the volatility of cryptocurrency prices will continue to grow. For some specialists, speculation on cryptocurrency will inevitably cause the bursting of the bubble and the disappearance of many digital currencies in 2020.
The consequences of a cryptocurrency crash
You can understand how weak Bitcoin and the cryptocurrency market are when compared to others. In July 2018, the total capitalisation of cryptocurrencies was 235 billion dollars. Ridiculous next to the residential market which is equal to more than 162 trillion dollars.
To compare the cryptocurrency market to that of the internet bubble does not really make sense. Indeed, in 2000 when the dot com bubble burst, the value of the internet companies had reached more than 5000 billion dollars. We can quickly see the weak macroeconomic consequences of the bursting of the speculative bubble when it comes to virtual currencies.
At this stage, we believe that the cryptocurrency market bubble bursting would have no significant impact on our economy. We believe that if Bitcoin, for example, loses all of its value, this would only have a negative effect on those who have placed it as part of their economy.
Nobody can predict with certainty the outcome of cryptocurrencies. What is certain is that if you decide to start investing, be very careful. Train properly, focus on long-term investments and use only the money you are willing to lose.