Crypto significant but unlikely to move mountains

Cryptocurrencies have a long way to go
Cryptocurrencies have a long way to go
  • Cryptocurrencies have a long way to go before they live up to the potential that true believers claim they have.
  • They are worth an impressive amount but do not have widespread awareness nor any clear use-case among users.
  • Financial regulators around the world are beginning to look at the market more seriously.

HONG KONG. Cryptocurrencies continue to fuel debate among regulators and users.

The total value market capitalization of cryptocurrencies as of Oct. 28 was almost US$210 billion. Take out Bitcoin, the grandmother of crypto, and that drops to US$97 billion. The current market cap of cryptocurrencies is down to about a third of the peaks hit in January.

That’s a lot of money, money that did not exist a few short years ago. In mid-2013, the total market cap of all cryptocurrencies was US$1.5 billion.

Let’s put that in a bit of perspective. The value of US dollars in circulation is about US$1.69 trillion. That’s just in circulation. As of 2017, there were 1.12 trillion euros of banknotes and coins in circulations. In both cases, that’s not counting money in bank accounts or funds. Apple, a single company, hit the US$1 trillion mark in market cap. In the fourth quarter of 2017 alone, Visa processed US$2 trillion in payments and then there is Mastercard and American Express and all the other cards.

Notably, just 8% of the American population have purchased or plan to purchase cryptocurrencies.

In other words, cryptocurrencies represent a significant market but not one that is likely to tip the scales for any economy. Some people have made not-inconsiderable fortunes on the various crypto booms and others have lost similarly impressive fortunes.

Why should regulators care? 

This is a market that regulators should not ignore but not necessarily one that is worth them getting very excited about. With that said, it is certainly important to develop regulations that encourage the crypto market and make it useful and open.

The public could certainly benefit (eventually) from a payment method that is cheaper than credit cards or bank fees for international transfers.

But, given that there is virtually no fundamental basis for any serious investors to arrive at a true value of cryptocurrencies (there are no future cash flows or underlying value) the market is likely to self-regulate, as it did with dotcom stocks in the 1990s or the tulips in the 1600s or cannabis stocks now.

Most countries are working on developing some kind of regulatory structure. As they should.

The outgoing chairman of the Hong Kong Securities and Futures Commission (SFC) Carlson Tong Ka-shing said the watchdog is looking for a fresh approach, Harbour Times reported.

Crypto market makers agreed that there is a need for specific and clear regulations. These would allow cryptocurrencies to tap into banking and financial systems and, perhaps, lend a modicum of stability to the market.