The cryptocurrencies market has flourished since the start of 2020, with Bitcoin gaining close to 30.84% between January 1 and May 29, 2020, while the Bloomberg cryptocurrency market index stood at $6,400 on May 29, 2020. Are these virtual assets set to enter the mainstream? According to our two experts, independent consultant Colin Platt, and blockchain specialist and member of R3 David Nicol, this is still unlikely.
What are cryptocurrencies used for?
Cryptocurrencies still remain primarily speculative investments at this point, and it is actually difficult to use the term currencies as such, as these assets are not used very extensively to conduct transactions. It is more appropriate to refer to them as investment assets. Payment accounts for no more than around 1% of Bitcoin usage, and it is seen more as an alternative to gold.
Who are these investors and savers who invest in Bitcoin, Ethereum and other cryptocurrencies?
There are two types of investors. Firstly, retail investors who buy small amounts of Bitcoins on platforms just to try it out e.g. around fifty euros. This is a sort of trend, or they are just curious. While the number of these investors is decreasing in proportional terms due to the decline in Bitcoin and its severe volatility, they still account for around two-thirds of clients.
Then there are larger clients, such as private banks, who work with brokers to invest higher amounts – their investments start at around $100,000 and they have a more speculative and asset diversification goal. The number of these investors is beginning to increase.
Where do these larger investors come from?
Europe still remains a very small market for cryptocurrencies, and is focused in Germany and Switzerland. The larger clients are more in Eastern Asia, China and the United States. This geographical breakdown can also be attributed to the fact that cryptocurrencies are used on some markets to get around legislation and regulation e.g. capital controls in China or Thailand, or on illegal markets in Colombia or Brazil. The most significant transaction volumes are recorded in offshore financial centers like Malta, the Seychelles, Hong Kong and the Bahamas.
Do companies use these virtual assets?
No, corporate clients still remain very scarce. They only use cryptocurrencies in very specific situations, for example to pay ransoms in the event of a cyberattack (ransomware). Businesses tend to use tokens rather than cryptocurrencies.
Following the Covid-19 crisis, do you think that the use of cryptocurrencies could develop to be used for everyday payment?
Cryptocurrencies are still suffering from the fact that their universe is vague, unclear, poorly regulated and difficult to understand. It is hard to imagine them becoming everyday payment systems in light of this, apart from in a country where legal currency is confiscated for example. Other means of payment are less expensive and remain easier to use. The general public will probably use cryptocurrencies to stockpile assets as an alternative to gold, or as a precautionary measure against bank defaults.
The fact remains that a lot of people are interested in how cryptocurrencies work, but they are not sufficiently interested in the advantages of using them and they opportunities they carry as investments.
The Blockchain consortium R3 is a financial market initiative partnered by Natixis, and set up with the aim of developing blockchain technology in the banking sector. This initiative promotes the development of shared standards and implementation of blockchain technology for the international banking community via the development of shared protocols, the building of architecture models and the writing of specific transactional constructs that span across various activities of the banking world.