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The following guest post is courtesy of Luis Aureliano, a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.
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In the last couple of years, blockchain technology and cryptocurrencies have attracted the attention of investors, entrepreneurs, and governments. There’s no doubt that blockchain could change the world in the same way that the Internet changed the world. Cryptocurrencies are already taking center stage in the global financial markets as more people start to embrace blockchain technology. Interestingly, the cryptocurrency boom has birthed a fundraising trend in which startups get to raise millions in capital through Initial Coin Offerings (ICOs).
The hottest news in the financial markets right now on cryptocurrencies is that China has moved to ban ICOs in the country. In other news, Jamie Dimon, one of the most powerful men on Wall Street has called Bitcoin “a fraud” which is “worse than the tulips bulbs” bubble of the 1600s. China’s clampdown on ICOs and the vocal bearish voice on Wall Street have triggered a panic in the cryptocurrency markets to erode the value of some cryptocurrencies. This piece however, provides the voice of reason on why investors shouldn’t panic amidst the reports of doom.
Here’s why regulators are worried about cryptocurrencies
The move to crackdown on cryptocurrency ICOs is aimed at protecting investors, many of whom may not be conducting due diligence before buying into an ICO. It is interesting to note that Chinese investors have invested about 2.6 billion Yuan ($394 million) in ICOs between January and June 2017. Hence, China had valid reasons for slowing down the ICO frenzy in order to prevent another bubble.
An unnamed partner in a Shanghai-based venture fund told Reuters that China had to clampdown on ICOs because “there are a lot of companies raising a lot of money for not very good ideas, and these will eventually be weeded out. But even from the big dotcom bust, you still have gems.”
Last month, Singapore’s financial regulatory body and central bank, the Monetary Authority of Singapore (MAS), revealed that it would start regulating the ICO market in the country. In a missive, the MAS noted that ICOs are “vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raise in a short period of time.”
Cryptocurrencies can still present enormous societal value
Irrespective of what the bears on Wall Street will want you to believe, cryptocurrencies still hold impressive societal value. To start with, fiat currencies all over the world are nothing more than promissory notes that have been bastardized by central banks and governments. The fact that governments are eroding the value of fiat currencies with reckless abandon is the main driving force behind the boom of blockchain-based cryptocurrencies.
Cryptocurrencies are anonymous and decentralized; hence, users can be sure that their ‘wealth’ is safe from centrally dictated decisions of a government or its agents. Apart of the latent potential of cryptocurrencies to displace fiat currency, a parallel industry is already rising up to provide ancillary services to the core cryptocurrency market.
Some unscrupulous folks might find ways to fleece unsuspecting investors through an ICO. Yet, the fact remains that many blockchain startups legitimately have useful products and services that adds to the value chain of the blockchain industry. CryptoPay for instance, is providing a bridge between the cryptocurrency and fiat markets with a Bitcoin wallet that can be used for buying, selling, and storing Bitcoin securely,
With the wallet, cryptocurrency investors don’t have to worry about fluctuations in the value of their cryptocurrency because their funds are held in BTC, EUR, GBP, and USD. The fact that the Bitcoin wallet hold funds in fiat currencies make cryptocurrency investments safe with a sense of stability that is currently lacking in the pricing mechanism of cryptocurrencies.
CryptoPay is preparing for an ICO in which it will sell CPAY tokens to investors who want to be involved in the bridge between cryptocurrencies and conventional assets. Even though China and other countries are trying to slowdown the ICO frenzy, we think regulators can do a better job at identifying and banning illegal ICOs instead of giving all ICOs a bad name.
It is practically impossible to shutdown cryptocurrencies
It is not fair that government regulators want to stop blockchain startups from raising money through an ICO. Blockchain startups find it very hard to raise funds from traditional financial institutions because lack of funding for the blockchain industry will keep fiat currencies alive long enough to keep traditional banks in business. More so, stopping ICO can prove to be a great way mount pressure on the blockchain industry at the point where cryptocurrency meets hits fiat currency.
Regulators have started flexing their muscles to slowdown the boom in cryptocurrencies as part of a tacit move to keep fiat currencies afloat in the economy. However, the cryptocurrency revolution is already underway and it is practically impossible to get the cryptocurrency genie back into the bottle.
The only way regulators can really stop the cryptocurrency boom completely is to shut down the internet. If governments are serious about stopping the growth of cryptocurrencies, they’ll need to find a way to convince people that have already started using cryptocurrency that it is in fact worthless. Unfortunately, the government might have better luck convincing people that gold is worthless than convincing people that Bitcoin is worthless.
Know how to spot ‘shitcoins’ before you invest in an ICO
Instead of trying to clampdown on cryptocurrencies and ICOs, government and regulators can do a better job at educating retail investors on how to identity and avoid ICO scams. For instance, investors should be thought to be extra cautious around ICOs that promise investors guarantee returns. All forms of investment have a latent amount of risk and any ICO that promises risk-free returns is probably looking for suckers. Investors need to understand that any new cryptocurrency must have a specifically unique role or function that makes its fundamentally different from other cryptocurrencies already in the market.