There are two big dangers for Bitcoin and cryptocurrencies: FTX crash (at present) and CBDC (in the future).
Summary
The FTX crash
Consequences of crashes
What are the CBDCs?
Conclusions
The FTX crash
Last week, collapsed Sam Bankman-Fried's FTX Exchange, one of the biggest crypto exchanges in the world.
I'm not interested in investigating the reasons for this collapse, I'm only interested in its consequences on the cryptocurrency world.
This is the third big crash in the crypto world since the beginning of the year: after the crash of the stablecoin Terra in May, followed by the bankruptcy of the cryptocurrency lending company Celsius.
Consequences of crashes
First of all, these crashes have reduced people's trust in cryptocurrencies and trust is fundamental, considering the nature of cryptos.
Second, these crashes, according to many people, demonstrated the lack of reliability in a market that is still very opaque. Therefore, this has become an argument in favor of all those calling for regulation of the cryptocurrency sector.
Third, the request for better regulation has opened the doors to CBDCs.
What are the CBDCs?
THE CBDCs are the Central Bank Digital Currencies. They are the digital currencies of the central bank in the national monetary unit having legal tender and guaranteed by the issuing central bank, therefore endowed with the same guarantees as the physical currency in circulation in the respective countries.
This makes CBDCs safer and less volatile than other digital currencies.
In the United States, the Federal Reserve Bank of Boston and technical experts from the Massachusetts Institute of Technology (MIT) are collaborating on the potential creation of a CBDC.
The European Central Bank has decided to launch a CBDC project with an investigation phase that will last from October 2021 to October 2023.
A concrete example of CBDC comes from China, where the government has created a digital yuan known as “eCNY”. This form of currency was used for the first time at the 2022 Beijing Winter Olympic Games.
The danger for the future of the classic cryptocurrencies is clear: with CBDCs, governments will gain greater control over citizens' money and purchasing power. When all money is digital and some transactions are not allowed, the ability to buy Bitcoin or other cryptocurrencies will be erased entirely.
There is also more. A government could make the central bank the only node in the network and make all private banks disappear. In this way, financial control over people and companies would be total (they could open bank accounts only with the central bank and carry out all financial transactions only with them).
Conclusions
I’m an optimist!
Regarding cryptocurrencies, I think that FTX Exchange Collapse was a terrible hit, but it also demonstrated the resilience of bitcoin & Co.
Look at this graph (Bitcoin, daily timeframe, and data from Binance):
Bitcoin (Screenshot by Author – Source: TradingView).
The lowering was heavy (from 21480 to 15680, approximately), but around 16000 was found the support that is still resisting.
This, in my opinion, demonstrates Bitcoin's ability to withstand even such hard blows.
We can say the same also for the other cryptocurrencies, like Ethereum (daily timeframe and data from Binance):
Ethereum (Screenshot by Author – Source: TradingView).
Regarding CBDCs, I think they will certainly be born in the future because technological evolution pushes in this direction, but I also think that commercial banks are too powerful to be bankrupted by central banks, so these banks will become the second-level nodes of the CBDC management system and they will remain active as intermediaries between central banks and private citizens.
Classic cryptocurrencies will survive because they are a financial asset radicated into society. CBDCs will be competitors, but they will not destroy Bitcoin.
Takeaways
- After three big crashes in less than one-year cryptocurrencies are still alive!
- Cryptocurrencies will have more competitors in the future, but they will survive, again.
Suggestions
- Never put all your eggs in one basket! You always need to think in terms of your portfolio and differentiate it. You could only allocate a portion of your capital to currencies and a part of this portion to cryptocurrencies.
- Furthermore, it is not necessary to buy the cryptocurrencies directly, you can also decide to buy or sell the Futures and the CFDs.
A sincere wish of good work to all!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of Technical Analysis (member society of I.F.T.A. – International Federation of Technical Analysts).
Warning
We merely cite our personal opinions for educational purposes only.
Investing and trading are risky. Don't invest or trade money that you cannot afford to lose.
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Initial Photo by Kanchanara on Unsplash.
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