At present, who is enamored of cryptocurrency? Fintech journalists, money launderers, and the Winklevoss twins aside, cryptocurrency appears on the backfoot. Journalists like crypto as a click-baiting headline play, while money launders are fond of its unregulated nature. Surely, the Winklevi like Bitcoin because they have hitched their wagon to it, and perhaps are in too deep to cleverly extricate themselves. Despite its current flaws, cryptocurrency is not yet consigned to history’s dustbin. The most important group needed for broad cryptocurrency adoption has yet to weigh in, merchants. When a cup of coffee is widely available in exchange for a cryptopayment, if ever, this will be alternative currency’s ultimate validation.
The history of alternative currency is as convoluted as its price finding process. In highly condensed form, the creation of crypto, most notably Bitcoin, was followed in the next decade by a speculative boom and bust. This includes the looting and collapse of Mt. Gox, the largest Cryptocurrency exchange at the time of its demise. The inevitable high-profile speculative bust was exacerbated by national governments advocating for regulation or entirely banning free exchange of Bitcoin and other cryptocurrencies. But the past is prologue, and as with all technical innovation, those with deep pockets and a penchant for disruption in Silicon Valley presume the best is yet to come. They are not without logic on this front.
Incremental Regulatory Progress
Indeed, despite the current price malaise, there has been evolutionary if not revolutionary progress. The listing of Bitcoin Futures on the Chicago Mercantile Exchange is instructive. Oddly, the CFTC decided to regulate Bicoin futures as a commodity contract, despite BTC lacking semblance of a commodity. Most egregiously, apart from the ability to “mine” it, BTC contracts seem to have no value for purposes of hedging corporate risk as do other commodity futures, for example oil contracts. The regulation of BTC as a commodity stems in part from some confusion among established institutions on what exactly to make of cryptocurrency. This is one likely reason for incremental instead of speedy adoption.
The story of regulation is key for broader adoption but has wider implications for cryptocurrency. For some, the value if not the point of crypto was its unregulated nature. It was to be governed by an algorithm, not a sovereign government with political motivation for currency controls. This feature made awkward bedfellows of money launderers, merchants pedaling illegal wares, and free market minded libertarians. Since regulated currency already exists in the form of fiat sovereign currency, what is the role then for crypto?
Investors are Hungry for the New, New
In terms of established institutions aside from regulators and exchanges, there is also continued investment in cryptocurrency from corporate interests including entrepreneurs, banks, and venture capitalists. These players smell an opportunity, even if they still do not know what that opportunity will ultimately entail. It is possible that at this stage banks and funds are motivated more by fear of missing out than a concrete vision of what cryptocurrency will be or how to eventually take advantage of it. For the meantime, the focus of cryptocurrency has been on its status as a speculative instrument.
Crypto for Traders and Speculators
In the past few years Crypto has become a widely traded financial instrument on regulated and unregulated exchanges. There are coins and exchanges to numerous to mention. How many instruments do traders need to express views on the market? Stocks, bonds, funds, currencies commodities, real estate all of these are widely available for investors to punt around. More importantly, these products have reasonably available public information that can be utilized for price finding and valuation.