Where were cryptocurrencies during the 2008 global financial crisis? Unheard from.
Today, they are being discussed as alternatives to fiat.
Bitcoin recently surged from around $7,000 on June 10 to just below $14,000 on Thursday last week. Unheard of.
For individuals, banks, corporate and regulators, the question is not if but when will cryptos replace mighty paper currencies and move us into the age of digital assets?
Cryptos as digital currency substitutes
The launch of the Libra project and the wild swings in the bitcoin market have given impetus to more serious discussions around cryptos’ future in our lives.
“Whether or not Libra succeeds, it confirms the inescapable reality that international money movements in the digital era will be based on blockchain-like solutions that disintermediate the existing gatekeepers and challenge the bank-and-sovereign money-dominated model of the 20th century,” according to Coindesk.
Gold or real estate are the typical ways people hedge against economic vulnerabilities and protect wealth. Is Bitcoin “digital gold”?
Regardless whether BTC or other cryptos will operated on centralized or decentralized monetary platforms, when JPMorgan’s JPM Coin, or the new Swift blockchain project, facebook’s Libra coin and CENTRE’s USDC make their presence felt, this signals a brave new era of moving money and exchange value around the world via the internet, as easily as sending emails or messages.
In search of safe havens
Regional security tensions in the Gulf, Yemen, Iran and Syria, the trade war between the U.S. and China, talks of a US-led global recession, a Venezuelan economic and oil crisis, have all taken a heavy toll on economic outlooks.
The search for traditional and non-traditional safe havens is underway in earnest.
Anxious investors flocked to safe-haven assets, sending Gold back above the psychological $1400 level, the Japanese Yen to sub-108 levels against the US Dollar, and yields on 10-year US Treasuries below 2%, according to Han Tan, Market Analyst at FXTM.
Along with US and European central banking systems considering quantitative easing (QE) strategies to spur spending and investment, investors have once again started buying inflation hedges, not just gold, up almost 10% in June, but also Bitcoin.
This could bring Bitcoin from a current $11400 at time of writing to $20,000, again, as it did end 2017. This type of volatility could be exactly what bulls look for as compared to the rather price-stable gold assets.
Fiat, Libra and Bitcoin: what’s the difference?
According to Money Control, In a Bitcoin system, the supply of the currency is fixed and there is no central agency like a central bank which can inflate or deflate currency supply.
It’s a free currency system.
“Historically, currencies were produced and managed by people and later by individual banks. This led to multiple currencies, leading to monetary chaos, and the function gradually moving to a central agency which was named as central bank which sought backing by commodities like gold, but post World War-II, most currencies became based on just fiat or government order,” said Money Control.
“Libra combines both these principles of free currency and fiat currency. It is a cryptocurrency but will be backed by a basket of fiat currencies. Thus, Libra’s value will change as the value of currency changes in the basket. The advantage of this strategy is that it will limit the volatility of Libra which clearly has been the bane of most other cryptocurrencies.”
Libra in that sense is a compromise and will be looked at less as a threat and more as smoother transition allowing central banks to move into the digital currency space.
Bitcoin vs Libra comparison
Bitcoin can be used by anyone, anywhere in the world, entirely independently of any organization or platform.
When it is released in 2020, Libra can be used for purchases and trades on Facebook, WhatsApp, and other Facebook properties only.
Both Bitcoin and Libra use Open Source technologies.
The bitcoin blockchain is entirely decentralized, with thousands of nodes spread all over the world helping to validate transactions.
Libra is far more centralized and will be managed by the Libra Association, a collection of companies from a variety of industries, who will all have a say in its ongoing development and operation.
Bitcoin is touted as a private, anonymous crypto.
Libra is not yet clear on separating the Facebook public from the industries managing the currency.