The Wild West phase of cryptocurrency is all but over. And the sheriffs cleaning up the sector may be set for some big bounties as they position themselves to leverage blockchain against some of the world’s most lucrative financial markets.
As this situation becomes more and more apparent, those who are already open to crypto investments have been suggesting for several months that it is time to ‘buy the dip.’ This is a throwback to the old era: ambitious investors should rather be doing hard research into the profitability of individual coins.
Legitimacy alone is not enough: crypto coins will have to chose what they are – currency or security – and offer suitable interest or profits respectively.
Tanzeel Akhtar’s excellent guide to ICOs on these pages [LINK https://www.investing.com/analysis/what-to-look-for-in-an-ico-200329229 ] was a timely reminder that there are some great companies out there using blockchain technology to raise funds - and a growing appetite from both funds and blockchain firms to provide regulated and secure options for investors and start-ups alike.
We saw this week that a Swiss start-up which is effectively a stock exchange for ICOs gained regulatory approval [LINK: https://blockstocks.com/ ]. This is unsurprising because the rewards for actually establishing the secure means for people to invest using blockchain are potentially huge: we are talking effectively about an attempt to gatecrash and disrupt the world’s stock exchange system. And countries will be increasingly tempted to fit such a sector into their regulatory frameworks.
Another European company, Aurus [LINK: https://aurus.io/], is setting itself up as commodities trading system: starting with gold, it aims to tokenise commodities in a way which is verifiable and 100% backed by hard assets. Most commodities are already traded digitally in this way, but blockchain can cut out a few middlemen and potentially allow you to pay for a coffee with gold: perfect for those who are losing faith in fiat money.
Gold, of course, has always had a knack of storing value, and AurusGOLD (AWG) is a potentially important development in the crypto market: it will provide a simple way to securely store the money raised in ICOs, and could finally help the entire crypto ecosystem to escape reliance on fiat currencies like the dollar as a unit of account. Other cryptocoins lack the stability for that and detractors argue that the same is true of the national currencies, so a return to the gold standard makes some sense.
For those crypto coins that want to style themselves as money, the challenge is that they have to find some way of paying interest, because in the blockchain world a unit of exchange alone is of little value - every security and commodity is effectively exchangeable, to many decimal places.
There are already attempts to set up banking systems for the crypto world - most notably Celsius Network’s peer-to-peer model of decentralised banking [LINK https://celsius.network/ ] that could help with this problem. In such a world, coins would rise and fall according to the interest that can be gained on them, just as fiat currencies do, while investors could look to these secondary markets to raise their own capital.
Given the choice to own coins that pay a dividend on the profits of an enterprise; hold tokens that are backed by stable commodities such as gold; or buy random coins on the basis that they may rise in value; investors will inevitably do all three.
There will always be a little bit of the Old West left in crypto, because conventional investing retains a wild edge as well. As the sector matures, however, it should become significantly easier for sensible long-term investors to stay out of the gunfights.
Dominic Jeff is a business writer: https://www.dominicjeff.co.uk/
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