San Agustin

Since the days of the global lockdown due to the COVID-19 pandemic, we have heard many discussions in media, social media and the internet regarding cryptocurrency. Although cryptocurrency was first introduced in 2008 by the mysterious Satoshi Nakamoto with the creation of Bitcoin (BTC), it seems like everybody today is talking about or is invested in cryptocurrencies. Coinmarketcap reports that the total global market for cryptocurrency is 1.5 trillion dollars. With the three largest currencies, Bitcoin, Ethereum, and Tether making up the majority of the global market cap. The largest of the cryptocurrencies, Bitcoin has seen high levels of volatility, hitting an all-time high of $63,503 and now trading above $40,700, all within a few months. But what is cryptocurrency? And why is there so much interest in it-between both the advocates and the skeptics.


What is crypto­currency?

Crypto­currency is a digital currency like the fiat currencies of today, can be used to trade for goods and services. The idea of Bitcoin and all other cryptocurrencies is that they are meant to be an alternative to modern-day currency. However, unlike the fiat currencies we know, cryptocurrency is not centralized or supported by any government. It is also worth mentioning that in 2015 the U.S. Commodities Futures Trading Commission defined all virtual currencies as commodities under the U.S. Commodity Exchange Act. Further, in a brochure prepared by the CFTC, defined Bitcoin (assuming all others cryptos as well) as “a convertible virtual currency. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.”

The debate

Since its increase in popularity and its rising market value, there have been many people debating the future of cryptocurrencies. Many believe that cryptocurrencies are the future and cryptos such as Bitcoin will be the currency of the world. On the other hand, there are just as many people who believe that decentralized cryptocurrencies hold no true value and will eventually decline in value and popularity. Advocates for cryptocurrencies argue that not only is it an appreciating asset because there is a finite amount that will be produced, it is a better alternative to the current system we have today. The current system involves many major banks and governments that not only complicates the system, it makes it inefficient. Furthermore, the concept of a decentralized currency that is not dependent on any institution of government creates a more stable currency.

However, skeptics believe that cryptocurrencies generate their value from speculation, and nothing else. This sole reliance on speculation to generate value falls in line with the “Greater Fool” theory. Keith Noonan of the Motley Fool company says the “Greater Fool” theory states that “investors can achieve positive returns by buying an asset without concern for valuation fundamentals and other important factors because someone else will buy it at a higher price.” This may seem apparent that if cryptocurrencies are to be used as a median for exchange of goods and services, it must become more practical, which is not the case today. 


What to do?

This is without a doubt, an exciting time in the history of cryptocurrency. The world could possibly be seeing the dawn of a global currency and a new way of doing things. Or this may be another speculative bubble waiting to burst, just as history has shown us with the demand for tulips in Holland during the 17th century. Either way, it can be tempting to not want to miss any opportunity. Just like every investment, time should be taken to truly understand the risks that are involved and whether or not you can tolerate those risks. It is also important to know not to overwhelm yourself with too much information that you end up doing nothing at all. Sometimes you’ve just got to take a chance. mbj