After a prolonged correction during January and early-February, cryptocurrencies were largely in consolidation mode as markets finally staged a modest recovery last week. Having bottomed out at $280 billion on Tuesday, total market capitalisation rebounded towards the end of the week to once again surpass $400 billion. Part of the recovery can be attributed to the South Korean prime minister explicitly stating that closing down cryptocurrency exchanges is not a serious consideration, an issue that had previously caused mass confusion in the markets. According to PM Lee Nak-Yeon, “The closing of [cryptocurrency] exchanges is not a serious consideration now. It is one of the many possibilities.”
But while some might still be concerned about the current crypto price levels, use cases for digital currencies continue to grow unabated. According to recent data from Coinatmradar.com web-portal, for instance, the number of cryptocurrency vending machines around the world has been rising dramatically in recent times, with 2177 in existence as per the latest count. 43 percent of those machines can also reportedly accept altcoins. And perhaps most encouragingly, 5 new Bitcoin-powered ATM machines are launched each day on average, while the total number more than doubled in 2017.
As far as specific countries are concerned, USA leads the way in terms of numbers, with 1296 functioning Bitcoin ATM machines in existence at present. Then comes Canada, with 340 machines in the country, and the UK in third place with 108 units. But perhaps somewhat disappointing at this stage is the relative lack of machines in Asia, where on 47 ATMs – or 2.16 percent of the world’s total – are currently operable.
It appears that JP Morgan has somewhat warmed to cryptocurrencies. Although the bank’s CEO Jamie Dimon has been highly critical of Bitcoin in the past, JP Morgan has released a 71 page-long detailed document about Bitcoin titled “Decrypting Cryptocurrencies: Technology, Application, and Challenges.” And the report surprisingly observes the benefits of blockchain technology and cryptocurrencies, “CCs are unlikely to disappear completely and could easily survive in varying forms and shapes among players who desire greater decentralization, peer-to-peer networks, and anonymity, even as the latter is under threat.”
The report also outlines specific areas in which blockchain and cryptocurrencies could have the greatest beneficial impact, “The underlying technology for CCs could have the greatest application in areas where current payments systems are slow, such as across borders, as payment, reward tokens or funding systems for other Blockchain innovations and the Internet of Things, as well as parts of the underground economy.” Additionally, the acknowledges the inflow of hedge funds into the space, and that cryptocurrencies “could potentially have a role in diversifying one’s global bond and equity portfolio.”
Regulation of cryptocurrencies is ‘inevitable’. That’s the opinion of the head of the International Monetary Fund (IMF), Christine Lagarde. Speaking on Friday, Lagarde stated that the trend towards cryptocurrency shows a “herd mentality” from investors seeking higher yield assets, as well as some degree of speculation. As such, she believes regulation will be “inevitable” and necessary on an international level, and also expressed the need for regulators to focus on ‘activities’ rather than ‘entities’. IN the words of the IMF chief, “It’s clearly a domain where we need international regulation and proper supervision.”
Lagarde also believes that some of the rush towards cryptocurrencies is being fuelled by “dark activity,” suggesting the likely use of the anonymous digital assets for money laundering and other illicit transactions. Her stance follows previous comments she has made regarding the need for regulation to prevent money laundering, first in October 2016, and then one year later when she also expressed the possibility of the IMF launching its own cryptocurrency.
And it would seem Lagarde’s predictions are quickly becoming a reality in 2018, with the European Union’s top securities watchdog indicating that cryptocurrency will among its biggest priorities this year. On Wednesday, the European Securities and Markets Authority (ESMA) highlighted specific focus areas for the coming months, and the development of financial innovation – including cryptocurrency and blockchain technology – is considered among the most important, “ESMA expects the rapid pace of financial innovation developments across the EU securities markets to continue in 2018. These developments influence the way in which securities are developed, traded and supervised. In turn, ESMA is undertaking material analysis on the emergence of such instruments as virtual currencies, such platforms as ICOs and such tools as the distributed ledger technology.”
Given this is the first time that ESMA has included cryptocurrency into its agenda, it indicates that greater scrutiny is likely to be applied to growth of the space in Europe going forward. It also follows ESMA’s January announcement in which it explicitly sought public feedback on possible regulatory changes around cryptocurrency derivative contracts. As part of the same report, EU member central banks (collectively known as the National Competence Authorities) are also due to shift their focus this year onto issues pertaining to financial innovation in areas such as cryptocurrencies.
The Federal Reserve has provided some of its thoughts on cryptocurrencies. On Friday, economists from the bank’s research and statistics group Antoine Martin and Michael Lee posted their thoughts in on the blog Liberty Street Economics, which is managed by the Federal Reserve Bank of New York. They explained the comparisons between cryptocurrencies and more conventional payment systems. According to Martin, “Cryptocurrencies arguably solve the problem of making payments in a trustless environment. But it is not obvious that this is a problem that needs solving, at least in the United States and other advanced economies.”
But Martin also cautioned that certain challenges need to be addressed when taking on trustless transactions, “One is scalability; the process of picking random validators takes time, is expensive, and consumes tremendous amounts of energy. Bitcoin and other cryptocurrencies are trying to improve scalability and convenience so perhaps in the future one of these cryptocurrencies could realistically compete with current payment methods.”
