The wave of global digitization has impacted the financial market heavily, with cryptocurrencies becoming extremely popular. Just in over a decade, the current market capitalization of cryptocurrency has reached $3.3 trillion and counting.
The digital currency market is attracting thousands of investors every day due to being highly profitable, easy to manage, and having minimum standard bars. On the other hand, due to the lack of central authority to regulate and stabilize the currency, it has an extremely volatile nature that significantly disrupts the economy.
Being a huge financial medium, how has cryptocurrency influenced the global economy, and what future does it hold for the financial market?
Challenging The Role Of Central Banks
Every country/region has its central bank that governs different monetary aspects on a national level that may differ from country to country. However, one common goal for every central bank is to control and regulate the flow of wealth. They use different tactics like change in interest rate, controlling money flow, etc., to constrain inflation and maintain the economy. In contrast, the central banks do not control cryptocurrencies due to being traded user to user on blockchain technology.
Blockchain technology allows cryptocurrency to be traded worldwide, courtesy of its decentralized nature. This makes it very difficult for the central banks to govern the digital currency as it is not in the form of their native currency, and the laws can not be applied digitally. Although cryptocurrencies can replace central banks, their potential is limited as even the most valuable currencies like Bitcoin and Ethereum have limited supply and do not have legal acceptance in most countries.
Opposing The Authority Of The U.S. Dollar
The U.S. Dollar has been the global currency for international exchange for decades because it holds a 60% share, i.e., the highest currency share, in foreign reserves. It is used to exchange commodities worldwide. As millions of dollars worth of cryptocurrencies are being traded online, it causes a significant change in the importance of the U.S. dollar that affects economies to fluctuate worldwide.
Some global companies and governments have started accepting payments in Bitcoin or other reliable cryptocurrencies for faster transactions with minimum restrictions. When the use of crypto to make business transactions increases, it will significantly lower the regulation of the U.S. Dollar, inevitably decreasing its value.
While the introduction of cryptocurrencies by independent investors has been warmly welcomed, most central banks and international financial institutions have remained cautious and adamant regarding volatility, tax evasion, and money laundering concerns.
- The United States Federal Reserve believes that cryptocurrencies are a threat to mainstream society unless there are solutions to its technical issues, governance, and risk management.
- The European Central Bank’s former vice president, Vitor Constancio, referred to Bitcoin as “Tulip,” a term associated with the 17th-century Dutch financial bubble.
- The Peoples Bank of China is open to accepting cryptocurrencies on the condition that it has full control over the digital currency ecosystem.
However, some central banks, like The Bank of England, see cryptocurrencies as a financial revolution and look forward to incorporating them into their economy. Similarly, the Venezuelan government has gone a step ahead and introduced its own cryptocurrency called “Petro.” However, Petro is not fully functional yet as it is facing opposition from the U.S.
Cryptocurrencies have gained massive attention and risen to a huge potential following blockchain technology. That said, the global acceptance of cryptocurrency does not appear soon as the central financial institutions see it negatively influencing the global economy. However, with the potential to beat inflation and eliminate huge transaction fees, there may be a way to colonize the use of cryptocurrencies after all. For more information on all things crypto-related, check out https://bitcoinloopholeapp.com/.
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