Introduction:
Few could have predicted just how much impact cryptos would have on the world when Bitcoin launched in 2009.
The digital currency was born from a concept to create a decentralised, Peer-to-Peer Electronic Cash System.
It gained immediate popularity from a social, cultural and technological point of view.
All around the world, people became keen to learn more about cryptocurrencies.
It then became a valuable trading and investing asset in 2014, when its price shot up into the thousands, reaching a meteoric $69,000 per coin in 2021.
And broke its own market cap record, hitting the $3 trillion mark in November that year.
Since the birth of Bitcoin, thousands of cryptocurrencies have been launched.
In 2014, online retail company, Overstock was the first major name to accept Bitcoin as a payment method. In the first 22 hours, they received over 800 orders worth US$126,000 in bitcoin.
In recent times, MasterCard, AXA Insurance, Starbucks, Visa, PayPal, Goldman Sachs and JP Morgan have joined the list of crypto acceptors.
As of now, 2023, central banks in 105 countries across the world are either looking into or launching a Central Bank Digital Currency (CBDC).
What Does This Mean?
It means cryptocurrencies might not only have a huge impact on the global economy, but the potential to change how the economy runs.
This is very apparent when some blockchain and crypto companies began pegging their coins to fiat currencies on a 1:1 ratio.
These coins became known as stablecoins. As the name suggests, pegging provides a sense of stability for the often volatile crypto.
And therefore, in theory, more trust.
With cryptos and blockchain technologies being developed at exponential speed, its evolvement and involvement in everyday life is only going to increase and grow stronger.
Here’s our summary of how we feel cryptos will impact the global economy:
Wealth Equity
Accessibility is one of the greatest advantages of cryptos.
More than 1.7 billion people don’t have bank accounts.
But with cryptocurrencies, making payments and receiving payments can be done without the intervention of third parties – i.e. the banks.
When you consider that time and again the current financial system has failed individuals globally, it is little wonder people find cryptos enables financial participation and even freedom.
It’s prompted millions searching for cryptocurrency courses online.
In that sense, cryptocurrencies can be viewed as beinginherently good for the economy as people learn to grow their wealth.
Inflation
The possibility that crypto could be inflation-proof is an intriguing one.
Bitcoin has long been regarded as a hedge against inflation and that’s because there will only ever be 21 million bitcoin. This scarcity ensures demand and value is steady.
Crypto might also prove a buffer against fiat currency devaluation.
Recession
How is crypto in the face of a recession?
As we have seen recently, the crypto market does go hand-in-hand with stock market movements.
In this current bear market, cryptos suffered in the same ways stocks did, making it an ideal time for investors to buy cheap.
But as history has shown, the stock market always rallies. The crypto market will no doubt bounce back with it.
Crypto Ecosystem
The crypto domain is a mere 14 years-old. It is still evolving, still finding its feet.
There have been some notable boom and bust moments in the past two years with certain crypto exchanges suffering from cybercrime and their own flaws and unsustainability.
What this is doing is creating an infrastructure where the projects that are fundamentally sound will survive and thrive.
The rise of metaverse, gamification and NFTs will no doubt have positive economic effects.
Business
The business world is already enjoying the benefits of decentralised cryptocurrencies and blockchain.
The absence of third parties means speedier transactions, lower costs and an increase in productivity.
Because there are no geographical barriers, cryptos have become common currencies between economies.
This facilitates an increase in trade, businesses receive payments in more currencies.
Cryptos are valuable to developing economies. New avenues for accessing capital are opening up for entrepreneurs. Capital is easier is to secure.
It all contributes to an increase in economic activity.
In emerging economies, estimates put the annual GDP at $ 3.7 trillion.
Financial Regulation
According to a report by The World Economic Forum’s Digital Currency Governance Consortium, governments and associated authorities are concerned they cannot set adjustable monetary policies with crypto.
The WEF conclusion is cryptocurrencies and stablecoins,“should both have a regulated role in economies because of rising concern around the potential spillover effects of crypto and stablecoins on the financial system.”
More efficient means of conducting payments, reducing transaction costs, and enabling new business models are other potential benefits of stablecoins for the WEF.
“Therefore, like crypto, stablecoin’s regulated role in economies will create the greatest macroeconomic net benefit to society.”
It also suggests that, “cryptocurrencies may have the potential to change how the economy runs.”
It should be noted, though, that the WEF’s mission is to engage with the “foremost political, business, cultural and other leaders of society to shape global, regional and industry agendas”.
How Countries Are Responding To Cryptos?
Some countries are right behind cryptos, although some central banks are put off by the extreme levels of volatility.
In September 2021, the Public Bank of China (PBOC)took an aggressive stand against cryptos declaring all crypto-related transactions as illegal. That ban is still in place as of 2023, although China has set in motion a CBDC pilot test in 23 cities.
On the flip side that same month, El Salvador became the first country to adopt Bitcoin as legal tender.
105 countries, representing over 95% of global GDP, are exploring CBDC.
Other countries have fully launched a digital currency or implemented a pilot scheme.
The two who have launched CBDC are Jamaica and the Bahamas.
Those that have launched pilots:
France, Singapore, India, China, Nigeria, Norway, Turkey,Eastern Caribbean Economic and Currency Union (OECS/ECCU), Ghana, Canada, United Arab Emirates, Saudi Arabia, and Uruguay.
Ecuador had fully adopted CBDC in 2014, but that scheme came to an end in 2018, maybe due to only 500,000 out of a population of 17 million using it.
In America, the Federal Reserve has been looking into CBDC since 2021.
Rather than replace its current financial system, the European Central Bankis looking at running a digital currency alongside the euro.
Bank of Japan is at proof of concept stage for a CBDC since April 2021
The Bank of England and HMRC are currently considering a “digital pound.”
The fact so many countries are looking into adopting cryptocurrencies as their national currency and replacing fiat altogether is another step on the road to a cashless society.
That in itself is going to have huge impact on the global economy.
Summary:
It has to be remembered that cryptos and the blockchain are still very new digital technologies that have only really boomed in the past few years.
As our research has proved, we are already seeing evidence that cryptos and blockchain are having a very huge impact on the global economy.
It is our opinion that impact is only going to increase, especially with the rise in AI.
AI, blockchain, cryptos, metaverse… put them all together and one could say they might well become the leading drivers in a new, futuristic global economy!
Time will tell.
As educators here at Padronanza degli investimenti, we have fingers on the crypto pulse every day because cryptos never sleep!
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