Should we invest in these new currencies?
What discourages investors is that these currencies are thought to be illegal, since they are not recognized by the world of finance, and their value would be based only on a Ponzi scheme with no value. In short, these currencies wouldn’t be more than a passing fad, a bubble that will burst in the face of the most gullible ones. These arguments put forward by some do not stand up to scrutiny.
Many countries legalize the use of crypto-currencies or at least accept their possession by taxing realized capital gains (for some of them). Even more, some countries don’t even think about creating their own crypto-currency. Last spring 2017, Japan recognized Bitcoin as a legal tender (The November 2016 law). The Japanese law describes the account opening terms in bitcoin and frames as the broker profession between Bitcoin and and other crypto-currencies. However, Japanese now use bitcoin as a payment method in their businesses.
In India, the government committee voted in June 2017 in favor of the Bitcoin regulation. A working group was formed in order to create various regulatory frameworks to legalize Bitcoin in the short term.
While crypto-currencies were banned in Russia, the government has now decided to encourage them and plans to legalize their possession over 2018. Russia has also announced its own crypto-currency creation, the crypto-ruble. It will be a currency state controlled and exchangeable against the Russian ruble without any charge.
The United States, the second largest Bitcoin stock market right after Japan, is also considering unifying the regulatory framework for crypto-currency trading platforms. In September 2015, the Commodity Futures Trading Commission (CFTC) officially declared Bitcoin as part of the commodities category, which was a first huge step towards regulating virtual currencies. It is in this country that the first Bitcoins ATM was installed, precisely around Austin, Texas, in 2014. Today, the US tax authorities consider crypto-currencies as an intangible good and subject to capital gains tax.
In China, if the creation of a state-owned crypto currency is not yet official, the Chinese Central Bank would be in the testing phase to create one, according to Technology Review, a magazine owned by the Massachusetts Institute of Technology (MIT). A rather authoritarian country, China has however banned ICOs.
Australia, on another hand, has recognized Bitcoin as a legal payment method and has been trading it as a tax currency since July 2017. The Australian company Star group will equip its 2900 ATMs with technology in order to exchange Bitcoins for Australian dollars.
In Germany, the tax authorities apply the capital gains tax regime to Bitcoin and therefore consider it a financial security.
Switzerland, the ultimate decentralized country on the political level with its 26 cantons having their own constitution, is also in test on Bitcoin. The city of Zug, located south of Zurich, accepts Bitcoin as a means of payment for its public services. It should be noted that this city has 30,000 inhabitants and 30,000 companies, including many holdings of large companies. The city wants to become a « crypto-valley » hosting start-ups in this area.
Estonia, the most advanced Baltic country in terms of citizens’ digital services, is planning to create its own crypto currency, the estcoin. It must be remembered that Estonia belongs to the Euro zone. This means that a cryptocurrency would definitely compete with the euro in this country.
The Chicago Mercantile Exchange Group (CME Group), the world’s largest exchange futures, has announced its intention to launch Bitcoin futures over December 2017. Since 2016, this platform calculates an exchange rate, the BRR (Bitcoin Reference Rate) by aggregating the the main Bitcoin exchange places flows.
Goldman Sachs is thinking of creating a traders team dedicated to crypto-currencies and would bet that Bitcoin will become a commonplace payment method and not just a savings asset. They are institutional clients such as investment funds, insurers, large companies, who have asked him to make Bitcoins purchases on their behalf.
Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street are currently developing a new crypto-currency, the USC (Utility Settlement Coin) which would be launched in late 2018.In addition to banks, investment funds are switching to this new market. Institutional investors are also attracted by this type of investment. For example, the Rothschild investment fund started to invest in Bitcoins through the American investment structure GBTC (Bitcoin Investment Trust).
The cryptocurrency market is valued at $ 400 billion (November 2017). It is particularly active: it is estimated at more than 3.5 billion dollars the volumes traded daily on the first 10 crypto-currencies. And while Bitcoin is the most famous cryptocurrency, its market share is steadily decreasing and does not represent more than half.
According to a Cambridge Center for Alternative Finance study by the in 2017, a number of between 3 and 6 million people use crypto-currency all around the world. Although more than 100,000 websites, like Expedia or private showroom accept virtual currencies as a payment method, most individuals use them primarily to invest. Indeed, these currencies are certainly currently more a financial asset than a payment method. However, Bitcoin is becoming more accepted among physical traders.
The crypto-currency industry (manufacturing, trading) is made up of 1,900 people working full-time, located in Asia-Pacific (38%) and North America (36%). Mining revenues (mining pools located mainly in China and also in the United States) are 786 million in 2016, and in constant progression.
Crypto-currencies are also increasingly used by companies looking for financing, as an alternative to the stock market. Instead of raising funds through an IPO, some companies issue their own currency and sell it at auction through an Initial Coin Offer (ICO). There is no need to complete a 100-page prospectus and comply with the requirements of the SEC (Securities and Exchange Commission). Since the beginning of 2017, 170 companies have raised $ 2.3 billion in ICO.
Investing in crypto-currencies is like investing in some new technologies. The innovative block chain technology, used by most crypto-currencies, will revolutionize tomorrow’s world. There are many examples: for the supply chains, each step of the manufacturing process can be registered in a block chain, from its production to the consumption place, without any possibility of fraud. This would improve food traceability, maritime transit, the diamond trade, wines, medicines, in which procedures are complex and fraud numerous. Here’s another example: Arcade city is a carpool platform based on the blockchain. It is a decentralized system in which driver and passenger decide themselves the price unlike Uber which imposes prices and levies a commission. The goal is for drivers to be 100% Arcade City owners in 2020 … and Uber to be absorbed! Arcade City will opt for the Ethereum system.
Should we invest in crypto-currencies? The answer is yes !
These are undoubtedly volatile investments (in one day, it would take more or less 20% of its value) and high risk when it is attacked alone. A speculative bubble seems to be forming as many newcomers rush into the quick wins prospect without understanding these new asset class fundamentals.
Investment in this economy is young and the market for some crypto-currencies can be very profitable. The investment must be made with a diversification view and correspond to unused on daily basis money (life insurance, PEL …).
But these are assets that shape the new world of tomorrow and are promising investments. A new technology foundation based on the block chain is emerging and changing the way we own information and stock it, such as internet technology. The new Google, Facebook, eBay, Amazon of tomorrow may be called Ethereum, Ripple, Nem or Iota.