Just this week, Changpeng Zhao, 44, CEO of cryptocurrency exchange Binance, became one of the richest people in the world with a net worth of $96.9 billion. However, this might be an underestimate, as this net worth does not include his cryptocurrency holdings and the Binance token known as Binance coin (BNB), which recently traded in the range of $500/token. Add all that to his net worth, and Zhao is probably the richest person on this planet. However, with the exception of El Salvador, almost all countries, including China, Russia, Indonesia, and India, do not allow cryptocurrencies to be used as fiat or legal tender. Governments and regulators usually don’t know how to deal with it. It’s no wonder, then, that cryptocurrencies have drawn mixed and extreme emotions from regulators and governments. Investors are left behind – whether or not to engage in cryptocurrencies.
Clearly, many people are willing to bet on the future of cryptocurrency. There are 100 million Bitcoin owners and 53 million traders worldwide. Some 22% of Americans own bitcoins. In India, the figure stands at 400 million cryptocurrency investors, according to various estimates. Overall, the total cryptocurrency market size is $2.1 trillion. Other than that, Bitcoin has a market share dominance of around 40.2% and Ether 19.9%, at present. Market capitalization has grown from zero to $2.1 trillion in just 13 years.
Bitcoin was the first cryptocurrency, launched on January 3, 2009. It was a crucial time in global markets, as the subprime mortgage crisis had taken a heavy toll on global stock markets and global economies. It also revealed the flaws in centralized banking systems. Of course, in the post-subprime crisis era, several governments chose to deal with the situation by printing money and spending their way out – leading to decades-long high inflation in many country.
The Covid situation has led to an increase in the impression of countries to fight the disease as well as to prevent their economies from sliding into depression. For example, inflation in the United States is 7%, the highest since 1982. In India, inflation based on the consumer price index (CPI) was 5.59% in December , even though the Indian government has not released money and spending to support the economy. More than 40% of the currency in circulation in the world has been printed in the past two years. This means that if you are not invested in an instrument that fights inflation, you are getting poorer day by day.
The rise of Bitcoin and 20,000 other cryptocurrencies (2,000 actively traded; the remaining 18,000 do not have enough liquidity) should be seen in this context. Global currencies, controlled by central bankers, have many uses. More importantly, they can be used for retail transactions. However, Bitcoin is more like gold or diamond – they are rare (21 million) and therefore their price is higher.
Goldman Sachs, which restarted its cryptocurrency office in 2021, predicted in a recent note that Bitcoin will take market share away from gold in 2022. However, not all cryptocurrencies have limited supply. Some, like Ether, have an infinite supply, but the annual supply is limited to 18 million.
Why are regulators uncomfortable?
A decentralized and digital currency means no one controls it. Investors from all over the world can invest in it, and the demand-supply equation is supported by the existing network and protocol, which involves millions of people in the process. It is therefore not necessary to have a third-party regulator. On the other hand, it falls to the Reserve Bank of India to honor the rupee, since the note says: “I promise to pay the bearer the sum of…”. The same goes for other global currencies.
Obviously, with the element of control being taken away from all regulators and the government, cryptocurrencies cannot be added/depleted to say, buy their way out of an economic crisis or pandemic situation. The lack of control makes regulators as well as the government extremely nervous.
Go forward, rregulators and governments need to view cryptocurrencies as something that evolves. Its value should be judged by the fact that millions of people are willing to invest in it. Just like shells, stones or gold have become “standards” at different times. Gold, for example, was used for a long time as the basis for printing banknotes before the latter created its own “standard”. Thus, the 13-year-old cryptocurrency market must have space to grow in a regulated manner and stand tall. After all, a teenager needs space to grow into an adult. Of course, the watchful eye of an elder (the regulator) is welcome.
The writer is CEO of CREBACO Global, a crypto-focused research and rating company
DISCLAIMER: Opinions Expressed