Children's cryptocurrency diseases

Following the results of SPIEF, the main news in the financial sector is the complete rehabilitation of cryptocurrencies.

According to First Deputy Prime Minister Igor Shuvalov, “our president released a small group of government members and administration employees only at the beginning of the second morning: we discussed exclusively new technologies and the digital economy. I can tell you without embellishment that the president is completely sick of this, understanding that significant growth rates are based on the digital economy and technological leadership.”

The statement sounded like the firing of a starting pistol. The Central Bank immediately announced plans, firstly, to create its own national cryptocurrency, and secondly, to allow cryptocurrencies to be traded on one of the Russian exchanges. As relevant Deputy Chairman of the Bank of Russia Olga Skorobogatova said on this occasion, “if a revolution is inevitable, it must be led.” According to unconfirmed information, the State Duma is already preparing a bill that would create the legal basis for exchange trading in cryptocurrencies in Russia.

On January 24, 2014, the Bank of Russia issued information "On the Use of 'Virtual Currencies,' Specifically Bitcoin , in Transactions." It warned all individuals and legal entities, among other things, that providing services for exchanging 'virtual currencies' for rubles and foreign currencies "will be considered as potential involvement in dubious transactions in accordance with legislation on combating the legalization (laundering) of proceeds from crime and the financing of terrorism."

Only three years have passed since then, and Elvira Nabiullina had already been the head of the Central Bank for more than six months. One would hope that this only speaks to the fact that the supervisory body is constantly changing, acquiring new competencies, and improving. Of course, malicious tongues will say that the Central Bank already knew everything back then and deliberately banned the circulation of cryptocurrencies to clear the ground for its experiment. But I still hope that the regulator does not have such a degree of treachery. Especially since Nabiullina is still very cautious in her assessments: in an interview with the American television channel CNBC on June 1 (i.e., even before Shuvalov's statement), she admitted: " We don't see any huge benefits from the introduction of digital assets in our economy."

Let's see what they're trying to drag us into. Currently, 738 spots are occupied in the cryptocurrency rankings (there's already one). 856 cryptocurrencies are listed on various trading platforms—their combined market capitalization is $88 billion, of which over $70 billion is the market capitalization of the top three cryptocurrencies, with Bitcoin joined by Ethereum and Ripple , little-known in Russia . Of the remaining, only four have a market capitalization exceeding $1 billion; most have tens or hundreds of thousands of dollars.

Meanwhile, the three most expensive cryptocurrencies at the beginning of this year were worth just over $16 billion, of which Bitcoin accounted for $15,3 billion . This means market volatility is staggering. It can perhaps only be compared to the volatility of currencies in economies experiencing hyperinflation—with the difference that during hyperinflation, currencies steadily decline, while cryptocurrencies demonstrate the ability to both decline and rise. For example, in dollar terms, Ripple rose from 3 to 40 cents between April 17 and May 17, an increase of over 1000%. Afterward, the cryptocurrency corrected to 23 cents and is now worth 29 cents. Bitcoin prices have fluctuated between $1,000 and $2,700 since March, and are now worth over $2,500. Ethereum has risen from $42 to almost $250 since April.

Therefore, the Bank of Russia’s willingness to recognize cryptocurrencies as a commodity and make it possible for them to trade on the Moscow Exchange may attract players interested in risky investments to the platform. Against this background, casinos may well seem like a “safe haven” and a retirement hobby. In fact, the Central Bank itself, in its information three years ago, warned that “there is no security for “virtual currencies” and there are no entities legally obligated for them. Transactions on them are speculative in nature, carried out on so-called virtual exchanges and carry a high risk of loss of value.”

A strong point for cryptocurrencies is that their issuance rate is physically limited—it's impossible to dramatically increase the amount of "computer time" that underlies their creation. But precisely because of this, quotations are always driven solely by demand. When demand is high, cryptocurrency soars. Selling, on the other hand, can push it down to rock bottom.

In the absence of an emission center, there is no one to “smooth out” sharp jumps, and the significant volume of capitalization of cryptocurrencies already makes the concentration of significant amounts in one hand problematic, that is, market manipulation is also difficult (although the example of George Soros, who collapsed the British pound in 1992, proves that nothing there is nothing impossible here).

But it's still worth remembering that the three most expensive cryptocurrencies at the beginning of this year were worth just over $16 billion, of which $15,3 billion was Bitcoin.

If the Bank of Russia starts issuing crypto-rubles, then, of course, a significant part of the described risks will be neutralized. But, on the other hand, the attractiveness of such an instrument will be lower than that of classic cryptocurrencies.

But, to be honest, such a radical change in the regulator’s attitude towards cryptocurrencies scares me. There is a suspicion that this is being done not for economic reasons, but due to the fact that certain people in the political leadership are carried away by digitalization. And the Central Bank, as a caring parent of a young child who wants to get a tattoo, chooses an experienced artist and approves the sketch of the future image. So that the child is happy and blood poisoning does not happen. But then it would hardly be wise for ordinary investors to invest in a suddenly emerging market at first. It’s better to watch how other people’s children play it.

Source: banki.ru