2017 was the year of cryptocurrencies as values soared only to fall dramatically in early 2018.
Crypto has captured the public’s imagination with dizzying gains and precipitous falls on a seemingly daily basis. So what does this mean for business? The answer right now is not much. While the debate rages over crypto, what is clear so far is that crypto hasn’t found a viable or scalable role to fulfill in global commerce. It’s unlikely that it will anytime soon. Essentially there is no demand for cryptocurrency. Importers and exporters continue to transact with each other in fiat currencies like Euro, US dollars, British pounds and Japanese yen. There are several reasons why crypto hasn’t taken off in the cross-border commercial world:
Daily swings of up to 20% make commercial use of crypto problematic. Exporters often invoice importers on net 30 or net 60-day basis. That’s a lifetime in crypto and the only way to protect profits is to fully hedge with 100% collateral; an unworkable solution.
Let’s not forget, crypto is not backed by any government. It could be worthless overnight and there is no recourse in the event of collapse. Not only is cyptocurrency risky so are the rickety crypto exchanges; recall the Mt. Gox debacle in 2014 and Coin Check and BitGrail in 2018 where more than a billion dollars of cryptocurrency was stolen from these hacked crypto exchanges. Given this environment, business has been wise to observe but not to play in the crypto world.
Crypto’s early criminal roots still have regulators worried as does the false notion that crypto is just like any other currency. Crypto is not like fiat currencies and the more it gives the appearance of feigned normalcy the more regulators are concerned. Some regulators have gone so far as to call crypto a Ponzi scheme. An Australian study found that 50% of Bitcoin transactions in 2017 were for illegal purposes. Businesses are far too smart and wary to embrace cryptocurrencies with this type of track record which will only invite further regulatory scrutiny.
Time will tell if cryptocurrencies are a fraud as one bank CEO recently quipped or if crypto is one of the great technical innovations of the 21st century. For now, however, stick with your Euro, Yen, Pounds, US Dollars and follow crypto developments as an interested observer.