Cryptocurrencies were in the news early in the year, as several coins rose to record prices, and cryptocurrency exchange Coinbase launched a public offering. Cryptocurrency prices peaked at the end of last year, then fell off a cliff, with fears about the economy growing. Bitcoin, for instance, had previously reached an all-time record high of almost $20,000 in December 2017, but was trading below $3,500 in December 2018.
Bitcoin has traded as a risky asset in previous years, and has shown a price sensitivity to interest rate increases. Some crypto evangelists have predicted that the Bitcoin price will eventually become separated from the S&P 500 - for now, however, the two are highly intertwined. The violent drop was caused by a mix of near-term and longer-term inputs, including major financial markets and a cratering major stablecoin.
For people who have been investing in cryptos for years, the sharp ups and downs are not news. For one thing, cryptocurrency prices contain a speculative element that attracts investors looking to make money off of changes in the markets value. Given that cryptos get part of their value from the faith that people put into them, markets may get rattled by surrounding skepticism or changes to policies.
As the prevalence of stablecoins increases, this suggests market participants are moving away from cryptocurrencies and toward U.S. dollar-linked stablecoins. Bitcoin and Ethers represent a large portion of cryptocurrency market shares , and we are seeing a number of new technologies emerge and grow rapidly. We explore some ways FS firms are using blockchain, as well as what we anticipate the future development of blockchain technologies.
We also examine how market participants, like investors, technology providers, and financial institutions, will be affected when Bitcoin becomes more mature. Financial institutions are exploring how they, too, can leverage blockchain technology to disrupt everything from clearance and settlement to insurance.
Cryptocurrencies could easily launch because, rather than building their own blockchains from the ground up, they can replicate code of existing blockchains. With newer cryptocurrencies, core code may be vulnerable in some new projects, said Chris Zaknun, the CEO of DAO Maker, a blockchain project startup accelerator. For people who are not familiar with crypto, layer one implies a cryptocurrency has its own blockchain, which could be used as the foundation.
Cryptocurrency exchanges can exchange the cryptocurrency into a large, government-backed currency, as well as exchange cryptocurrencies for other cryptos. Bitcoin has value as a medium of exchange; alternative cryptocurrencies may improve upon Bitcoins model, or may have a different use for which it generates value, like Ether.
The low fees, fast speeds, and ease with which cryptocurrencies can launch means there are a number of high-speculative assets traded on the BNB blockchain, particularly in times of a pandemic boom. A new report predicted that while the chances for crypto-contagion are limited right now, since FTX has filed for bankruptcy, there could be a second-order effect in the cryptocurrency markets due to counterparties who might have loaned to or interacted with either FTX or Alameda.