IMF Chief: Cryptocurrencies Will Give Banks ‘a Run for Their Money’

The head of the International Monetary Fund (IMF) has said cryptocurrencies may eventually give traditional banking systems ‘a run for their money.’

Speaking at a Bank of England conference at the end of September, Christine Lagarde, the managing director of the IMF, said that ‘it may not be wise to dismiss virtual currencies.’

She added, however, that:

“For now, virtual currencies such as bitcoin pose little or no challenge to the existing order of fiat currencies and central banks.”

The reason this is is because cryptocurrencies are ‘too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.’

Yet, she states:

“Many of these are technological challenges that could be addressed over time.”

She cites the fact that experts once believed that personal computers would not catch on and that tablets would simply be regarded as ‘expensive coffee trays.’

Adopting Cryptocurrencies

Notably, Lagarde outlines how countries with weak economies and unstable national currencies might embrace digital currencies instead of another country’s currency such as the U.S. dollar or the British pound.

Furthermore, it might provide them with better value for money by doing so.

She explains by saying:

“It may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable.”

She went on to say that countries may increasingly turn their attention to new payment services through a decentralised economy. Rather than paying by credit card or e-money, which charge high fees for small transactions, particularly across borders, cryptocurrencies may flourish.

“Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities.”

Lagarde adds:

“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

Cryptocurrencies Are ‘Unlikely’ to Weaken the Fed

At a time when Lagarde believes digital currencies will give banks a run for their money, the U.S. Federal Reserve chief doesn’t think they will weaken its influence on the U.S. economy.

Speaking at a fintech event, Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said that bitcoin has yet to be tested by a serious issue that will see its price drop.

Additionally, when one does take place, people are more likely to turn to a government-backed currency, Harker claims.

He said:

“The paper that’s in your pocket, that we call money, only has value because we believe it has value, because we believe the government stands behind it. It’s all trust issues.”

He added:

“And so, when cryptocurrencies and other forms of currency emerge, I think the basis of that has to be how do they create that trust?”

Despite the growth of the digital currency market, Harker appears unconcerned. So much so, that he doesn’t believe that it will weaken the Fed’s influence on the U.S. economy.

China Crackdowns on Domestic Exchanges

Both of these comments come at a time when the crypto market is experiencing a renewed surge in price. Bitcoin’s price in particular has rebounded since September.

On the 2nd September, its price was trading over the $5,000 mark for the first time. However, a few days later Chinese authorities announced they would be banning initial coin offerings (ICOs). This was shortly followed by a crackdown on domestic digital currency exchanges. As a result, the value of bitcoin fell to below the $3,000 mark on the 15th September, to $2,987.

As traders weighed China’s decision many sold their coins during a massive selloff. It wasn’t just bitcoin that was impacted; cryptocurrencies across the board saw their values drop in some way as a result.

Consequently, several prominent Chinese digital currency exchanges revealed that they would be closing their services. ViaBTC was the first domestic exchange to do so. However, questions remain as to whether the exchange will relaunch its operations overseas in light of Beijing’s ban.

BTCC is the latest digital currency exchange to cease operations, with its suspension taking place on the 30th September. On the 27th September, the exchange had stopped accepting deposits. In a tweet, BTCC claimed to have had the longest known lifespan of a digital currency exchange, having operated for ‘2,305 days.’

BTCC have said that they will continue operating their services outside of China. Additionally, the exchange has confirmed that its mining pool will operate normally. Yunbi, OKCoin and Huobi are expected to cease the operations at the end of October.

‘More than Just a Fad’

Interestingly, while most bank CEOs are staying away from the crypto market, not all think the same.

At a time, when Jamie Dimon, JPMorgan Chase CEO, called bitcoin ‘a fraud,’ Morgan Stanley’s CEO has come out in favour of it.

Shortly after Dimon made his comments, James Gorman, CEO of Morgan Stanley, is taking a measured view of the cryptocurrency.

At the end of September, he said that bitcoin is ‘certainly something more than just a fad.’

Speaking at an event held by the Wall Street Journal, he explained:

“The concept of anonymous currency is a very interesting concept – interesting for the privacy protections it gives people, interesting because what it says to the central banking system about controlling that.”

While Gorman said he hasn’t invested in the crypto market, these comments will no doubt be refreshing to hear.

He added:

“It’s obviously highly speculative but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.”

Bitcoin’s Value Increases

Despite September being a terrible month for the cryptocurrency market, it has rebounded in price.

At the time of publishing, on the 2nd October, bitcoin’s value has risen to $4,405, a 2.43 percent rise in 24 hours. In seven days it has increased by 13.83 percent. Its market value is currently worth $73.1 billion.

The combined crypto market is now worth $148.9 billion. This is still below its $180 billion record; however, the market is steadily recovering.

Featured image from Flickr via World Economic Forum.

Morgan Stanley: We Don’t Expect Cryptocurrencies to be Fully Disruptive

Leading global financial services firm Morgan Stanley has given its view as to how disruptive cryptocurrencies are going to be to fiat monies.

According to the bank, the crypto-revolution is not going to replace traditional currencies.

In a report, Morgan Stanley said:

“We think that cryptocurrencies as a group are likely to see some adoption outside of the incumbent financial system, but we do not expect them to be fully disruptive.”

In a ‘Fintech Gauntlet chart,’ Morgan Stanley has illustrated that disruption is possible, but it will be slow to take place. However, the bank suggests that only through regulation will cryptocurrencies be capable of gaining trust among the people. This will also enable them to enter the financial system.

The bank adds that digital currencies such as bitcoin are acting more as assets than as a way of transacting with.

It stated:

“With high volatility, low acceptance, relatively slow transaction times, and negligible fraud/transaction validity advantages (at least for now), bitcoin (and all cryptocurrencies) are functioning more like assets than true currencies or transaction mechanisms.”

High Electricity Use

One thing that is often debated is the amount of electricity required to mine each bitcoin. When bitcoin first appeared all that was required to mine it was a simple home computer.

However, as the mathematical problems to unlock new bitcoins became more complex to solve, networks with greater power than home computers were set up to mine the coins. As a result, this requires the use of more power and electricity.

According to Morgan Stanley, in the early days of bitcoin the energy generated could power a small power plant. Fast-forward to 2017 and the power generated is more than enough to power one million homes.

Additionally, as reigning networks don’t require huge amounts of electricity to function, it will be interesting to see how cryptocurrencies continue to mature.

Bitcoin Acceptance is Shrinking

This isn’t the first time that Morgan Stanley has made a statement regarding the crypto market.

In July, the bank said that bitcoin acceptance among top merchants was on the decline. In a research note to analysts it said that ‘bitcoin acceptance is virtually zero and shrinking.’

According to the bank, in 2016 the cryptocurrency was accepted at five of the top 500 online merchants. Yet, in 2017 that number had dropped to three. Of course, while the numbers may hardly be drastic, it does give some insight into what merchants are thinking. This is that accepting the digital currency may not be worth it.

It’s believed that this drop is down to the fact that people are more likely to hold on to their coins when its value goes up, rather than spend them.

The analysts said:

“The disparity between virtually no merchant acceptance and bitcoin’s rapid appreciation is striking.”

Overstock’s Confusion

Online retailer Overstock is confused. Confused by the fact that so many online companies don’t accept bitcoin as a payment option.

In July, Jonathan Johnson, the president of Medici Ventures, the venture capital subsidiary of Overstock, said that there had been a ‘modest’ uptick in the number of bitcoin transactions on the site. He also added that it was ‘crazy that so many retailers don’t accept bitcoin.’

One of the reasons may be down to the fact that retailers aren’t willing to pay for the costly transactions of bitcoin. Yet, Johnson believes this is irrelevant.

He stated:

“The cost of accepting bitcoin is very low. It’s actually cheaper for us to complete a bitcoin transaction than it is to complete a credit card.”

When Overstock first began accepting bitcoin in 2014, the company kept 90 percent of bitcoin and converted 10 percent back into cash. Now the company keeps 50 percent in bitcoin.

Such is Overstock’s commitment to the advancements of digital currency acceptance that the firm now accepts over 40 cryptocurrencies. Earlier in August, the company announced that it would allow customers to use major digital currencies such as ethereum, litecoin, Dash, Monero and bitcoin cash to buy online from Overstock’s nearly four million products. By integrating with ShapeShift, the world’s leading instant digital asset exchange, Overstock will be able to convert the cryptocurrencies into bitcoin.

Patrick M. Byrne, CEO and founder of Overstock, said:

“Overstock is pro-freedom, including the freedom of individuals to communicate information about value and scarcity without relying on a medium created through the fiat of unaccountable government mandarins. For that reason, we have been an early proponent and adopter of cryptocurrencies.”

Increasing Bitcoin’s Acceptance

Even though there are a handful of online merchants who accept bitcoin for payments such as Starbucks, Subway, Dell, Expedia and Microsoft, many would like that number to rise.

So much so that cryptocurrency fans launched a petition on Change.org urging Amazon to accept the digital currency. At press time, on the 25th August, there were 5,380 supporters of it with a goal of reaching 7,500.

Whereas CoinGeek, a bitcoin and blockchain news site, sent $100 in bitcoin to the financial directors at 20 of the top online brands. These included Alibaba, Amazon, Tesco, Staples, Uber, MacDonalds, Netflix, Airbnb, American Airlines, LVMH, AT&T, CVS Health, Tesla, Apple, FedEx, John Lewis PLC, Spotify, BMW and Red Bull.

Of those companies Airbnb was the first one to take up the offer in July. However, since then two other companies have followed suit: AT&T and American Airlines. Of course, this doesn’t mean the companies will automatically start accepting bitcoin. In fact the financial directors may simply just be taking the free coins on offer. Hopefully, though, in the not-so-distant-future more organisations will jump on board.

As Johnson said:

“I don’t know why a CEO wouldn’t want to make it easier for folks to spend money.”

Still a Long Way to Go

While the crypto market may be making an impact it still has a far distance to travel if it wants to disrupt finance. And yet, steps are clearly being made. The saying ‘Rome wasn’t built in a day,’ is very apt here and can certainly be applied to cryptocurrencies.

The finance world is witnessing a change in how people conduct their day-to-day finances and given time the digital currency market could replace incumbent networks.

Featured image from Shutterstock.

Bitcoin Acceptance is Rapidly Shrinking, According to Morgan Stanley

The value of bitcoin is up by 250 percent in 2017, but according to research conducted by Morgan Stanley, bitcoin acceptance has seen a decline among top merchants.

For a digital currency that is working at becoming a mainstream currency that people use for their day-to-day purchases, could this be the beginning of the end for it?

According to a research note by analysts at the leading global financial services firm led by James E Faucette, it said that ‘bitcoin acceptance is virtually zero and shrinking,’ even though the digital currency has soared in value over the past seven months.

The bank goes on to say that in 2016 bitcoin acceptance was seen at five of the top 500 online merchants; however, fast-forward to today and that number has dropped to three. While this figure is hardly drastic, it does highlight what many merchants may be thinking, and that maybe adding bitcoin to their payment options is not worth it.

The analysts said:

“The disparity between virtually no merchant acceptance and bitcoin’s rapid appreciation is striking.”

One of the main reasons for this drop in bitcoin acceptance is due to an increase in bitcoin’s price value. Naturally, when the price of the digital currency goes up, people appear unwilling to let go the coins they hold. Keen to make a profit on their holdings, they are unlikely to pay for goods and services with it.

As of the 13th July, the price of bitcoin is trading at $2,412, according to CoinDesk’s Bitcoin Price Index (BPI). Yet, while this price is significantly lower than its historic June high of over $3,000, people are being urged to hold on to their coins with many speculating that the price will go back up again in the near future.

Online furniture retailer Overstock.com revealed that it now takes in around 100,000 bitcoin transactions a week, compared to 30,000 which it reported in 2016.

While energy provider Switch, owned by EnergieAllianz Austria that operates in Austria and Germany, has revealed that it now accepts bitcoin in Austria. It remains to be seen whether this will also extend to Germany in the future.

Buy Bitcoin

Meanwhile, an identified man was reported as holding up a ‘buy bitcoin‘ sign yesterday during a testimony that Fed Chair Janet Yellen was presenting before the House Financial Services Committee.

Delivering a monetary policy report to Congress on the state of the economy, Yellen didn’t make any reference to the digital currency; however, the man was subsequently removed from the hearing room after violating the House committee’s rules on holding up signs.

While bitcoin hardly needs any free advertising to bump its price up, this will no doubt have helped to push the bitcoin agenda that received several seconds of air time.

Asset or Currency?

For many the idea of whether bitcoin should be classified as an asset or a currency is a never-ending debate. Interestingly, the fact that holders of the digital currency are not willing to use their coins for purchases could mean that they see bitcoin for investment purposes only and not to pay for things.

Recently a central advisor to the People’s Bank of China (PBoC) said that bitcoin didn’t meet economic developments to be held as a currency, but that it should be viewed as an asset. According to the advisor, the fact that bitcoin was capped at 21 million meant it would be hard for the currency to gain prominence.

His thoughts follow Russia’s Central Bank, which has been weighing the pros and cons over whether to regulate bitcoin.

According to Elvira Nabiullina, governor of the Russian Central Bank, she views bitcoin as a digital asset rather than a currency.

She is reported as saying:

“We don’t consider that Bitcoin can be considered as a virtual currency. It’s more digital assets with the regulation of assets.”

India, too, has been looking into the role that bitcoin can play and if it should be banned or regulated. A full intergovernmental committee report is expected to be released later in July on its findings; however, it’s unlikely that a ban will be the chosen decision.

Bitcoin Acceptance in Japan

One country that has had a complete change toward bitcoin is Japan.

Previous experience with bitcoin and digital currency exchanges such as Mt Gox have left a sour taste in most investors’ mouths. As a consequence, investors have turned away from it. Only recently the CEO of the now-defunct Japanese exchange, Mark Karpelès, pleaded not guilty to embezzlement charges relating to the disappearance of 650,000 bitcoins in 2014.

And yet, while thousands of investors of Mt Gox wait for some form of compensation, merchants and investors are turning their attention back toward bitcoin.

In April, the country changed its payment regulations, which now sees bitcoin as a legal form of payment option. As a result, 300,000 merchants are expected to offer the cryptocurrency to customers by the end of 2017.

One of which is the low-cost Japanese airline Peach Aviation Ltd., which announced that it will be accepting bitcoin to customers who want to pay for flight tickets. It is hoped that by doing so, the recent fascination with the digital currency will help to attract more visitors to the country.

Bitcoin Still Holds Value

Yet, even though Morgan Stanley have said that the rate of bitcoin acceptance is dropping among top merchants, it clearly still holds plenty of value for millions of people.

Even though there will be people who are simply holding the digital currency as an investment vehicle rather than as a payment choice, countless others will be using it for goods and services.

Take India for instance. Last November, the country was faced with a cash crisis when the government wiped off around 86 percent of the country’s national currency overnight. In a bid to tackle the black market, the Rs 500 and the Rs 1,000 banknotes were removed, leaving citizens unsure of the future.

The currency they turned to was bitcoin. Decentralised and transparent, it offered the safe haven that many were seeking in their time of need. As a result, the rate of bitcoin’s acceptance grew with an increasing demand for it among the 18-35 age range.

Yes, the digital currency may have been dropped by a few top merchants, but this is by no means the end of the currency. It still has plenty of room to grow and who knows what 2018 will produce? Maybe the number of merchants accepting it will increase, particularly after it solves its scaling issues.

Featured image from Flickr via tiendientu vietnam.