The baseline for every currency is the of the sum total of a county’s holdings. Many that was in gold but the gold standard has now fallen by the wayside. At least for most countries in the world. However, normal currencies – such as you and I use has become rapidly a source of dissatisfaction. For many people the work the networks of financial institutions and their relationships with government frankly makes people uneasy.
So at some point the dam had to break- there had to be a better way to encourage financial transactions – was there a way for people to exchange value – without being subject to the terrible costs of using the traditional financial system?
The answer came in the form of cyptocurrency. A limited amount of currency that would allow those who wanted to swap their fiat current for something a bit more ephemeral. A currency that was based on encrypted data.
It was a hit. Many people, for many difference reasons that that cvryptocurrency woould take their lives onto to a whole a whole new level. It promised freedom. You could but a Ferrari if you wanted – using a currency that was not attached to any government – nor a global financial institution.
But something went terribly wrong. It seemed that the Grandfather of crypto was not as invulnerable as it seemed. Bit differed an implosion that made emerging market economies seem robust by comparison. It simply fell of a cliff Bitcoin lost 60% of its value in 2018. For a virtual currency that took the world by storm a a valuation of $1500 per bit was a fall from grace. When one considers that a Bitcoin would have minted you $20,000 in 2017 the drop is enormous.
But why? Why would the darling of not only private investors but also institutional investors simply hit the doldrums? It is incredibly puzzling – market economics seemed have gone mad. Bitcoin is limited in circulation – that is one of its attractions – the inventor did it purposefully. Once the mine of Bitcoins is gone – it’s gone, the algorithm that manufactures them simply does not allow for any more to be made. So scarcity should make them more valuable. It didn’t happen that way.
Today the slide into oblivion bu cryptocurrency has been surrounded by confusion. The Blockchain system that guarantees anonymity and stands at the foundation of currency stand in danger of crumbling – the anonymity of these currencies seem to be under attack from a a variety of sources.
So why did things like this happen? Firstly it was human error. Buying Bitcoin (as an example) was lucrative. Sell high, buy low. But unfortunately there is only so much market demand under this model. eventually someone runs out of money – and that was the buyers who leaped into the Bitcoin storm.
Secondly there were the manufacturers of high powered chips that allowed those who wanted to mine Cryptocurrency to make a living. Both AMD and Nvidia decided that there focus was elsewhere. With the withdrawal of these two companies that vital support for mining which provided new coins was removed. One would have though that the lack of new coins would increase demand – it simply did not.
At the same time the tech market in the U.S. was hot by the perfect storm – a falling stock market where tech stocks led the way towards that cliff.
The reason – even at that point – when 2018 was drawing to a close it seemed that the Cryptocurreny market was destined to be a relic of financial history. However, the reality might be slightly different – even institutional investors seem to be taking a new interest. The truth of the matter is that the model used to provide Cryptocurrencies is not at all flawed – it may simply not have been marketed correctly. This may in part be due to regulatory approval – big government is no fan of a currency that is in essence completely private – and can therefore not attract a tax income. However there is one simple truth – Crypto is not going away anytime soon and those who are holding on to the Granddaddy – Bitcoin may be best served by holding on a little longer.