Bitcoin (BTC) Faltering But ‘Dark Cryptocurrencies’ Could Flourish (Feb ’18)
We are just starting the second month of the new year, and bitcoin prices have already fallen close to 50% from the January 2018 highs.
Whilst this will be a shock to the retail trader community, professional investors and research analysts have been suggesting caution since late 2017.
In fact, in a video report on 9 December 2017, European-based wealth management company, Werthstein, highlighted the risks in cryptocurrency speculation.
It can be viewed here.
Now that we have seen a sharp drop in prices, retail speculators are likely to exercise more caution before entering the market.
The pull of quick, ‘sure thing’, profits is weakening, as retail investors ride out very volatile markets. Those who were burned on the way down will be thinking carefully before re-entering.
This could prove to be a good thing for cryptocurrencies.
A less volatile market will begin to attract the attention of the ‘big players’. The professionals who have stayed away because the risks were just too great.
However, before a new Crypto Asset Class can be created, a robust regulatory framework will also need to be constructed. When this in place, bitcoin, and cryptocurrencies in general, will be a step closer to becoming a legal investment vehicle. They will then be traded in the same way as global FX instruments.
However, there are also cryptocurrencies which are being traded ‘under the radar’.
An example of a ‘dark web’ cryptocurrency is Monero.
The difference between Monero, and, for example bitcoin, is that Monero transactions are all completely invisible.
Whereas bitcoin transactions can be tracked and audited, Monero transactions are completely invisible.
The Monero blockchain – or ledger – is anonymous.
There are no transaction records – buyer ID, seller ID and all transaction details are hidden.
Against this backdrop of anonymity, Monero could be providing far more lucrative benefits than its visible counterparts, such as bitcoin or Ripple, as entities look for secure ways to move their funds around the globe.
Could this be a plot for a best selling political thriller?
Are authors now crafting plots centred around the sale of nuclear arms through dark cryptocurrencies? Or perhaps Oil deals are being brokered? Or maybe a more sophisticated economy is developing, resulting in a forking of blockchains?
In the real world, the economic risks of these plots are of global importance.
They provide a means to circumvent any global sanctions and create underground economies – a crypto Comecon of modern times.
Whilst the effects of these underground economies will gradually become visible, it will be a very difficult task to ‘follow the money’ and deconstruct the trail.
The sharp fall in the global cryptocurrency space is not a surprise.
When prices eventually stabilise and global regulation improves, professional investors will likely come to view CryptoFX as a new asset class.
However, an altogether different risk is developing in ‘dark cryptocurrencies’. They could lead to an increase in global tensions, create a crypto-Comecon and force countries to reassess how they impose sanctions.