Page 122 - Ocean Blue World Fall 2019 Edition

PORTFOLIO

DIGITAL

TULIPS?

By Daniel Penseyres
ryptocurrencies, led by Bitcoin, have made the headlines in recent
months, such as with Facebook’s Geneva project, Libra Networks.
The coverage has raised more questions for investors than it has
Canswered.

Are cryptocurrencies the future? As investments, is it a fad leading to a
bubble?

For a time, rocketing valuations made them look like spectacular investments.
Bitcoin started in early 2017 at $985 U.S. and peaked at $19,000 U.S. by
year’s end. By third quarter 2019, it dropped to around $9,500 U.S. It has
definitely shown the ability to generate spectacular returns and equally
spectacular losses.

Compared to Bitcoin, fiat currencies have three functions: they serve as
means of payment, units of account and stores of value (trust). For now, it is
not clear whether Bitcoin functions on any of these levels.

If cryptocurrencies aren’t really currencies, what are they? Moreover, will
governments remain on the sidelines?

Probably not. In fact, some recent financial research papers are exploring the
idea of Central Bank Digital Currencies (CBDCs); considering the pros and
cons of making these CBDCs available to the public. All agree that there are
major implications ahead. Exploratory endeavors including the European
Central Bank, Bank of Japan’s, Stella, and Bank of China’s, Jasper, to name
a few, are looking at CBDCs as a possible building block for the future of
cost-efficient cross-border transactions.

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