Cryptocurrency prices are seen on a screen in Hong Kong, China, on September 27. REUTERS
I'm sure almost everyone has heard of cryptocurrencies. Some might even be investing in them. But few understand what they are really for and, more importantly, how should they be valued? As of December 15, a Bitcoin had a market price of 48,144 US dollars (just over 1.6 million baht per coin).
Three years ago, the same coin was priced at 1 coin for $ 3,300. Bitcoin's price peaked at nearly $ 68,000 per coin last month before plummeting to the current level. Do the crazy price movements give an indication that these virtual currencies are nothing more than gambling chips?
Cryptocurrency is an imaginary or virtual currency invented by Satoshi Nakamoto (probably not even a real name) in 2008. The currency (Bitcoin) is intended to be a means for international payments free from government intervention and financial institutional control.
The technology that allows the creation of cryptocurrency is blockchain technology. Bitcoin first circulated in 2009 with an initial valuation of 0.00 per coin. The coin began actively trading after 2017 with a market price of around $ 1,000.
From a single cryptocurrency in 2008, by 2021, there are over 6,000 cryptocurrencies on the market with a combined value of $ 1.49 billion. It is estimated that the cryptocurrency market is expanding at an average of 12.8% per year. In my opinion, the cryptocurrency market is nothing more than a gambling den because there is no intrinsic value for a cryptocurrency. It can be priced as much as anything you want.
Unlike cryptocurrency, fiat money, such as the baht, yen, dollar, and euro, has intrinsic value. These real currencies are backed by the values โโof their respective economies. For example, the total Thai money supply of 23.7 trillion baht is supported by the Thai economy with a GDP value of 15.7 trillion baht in 2020.
With the principle of intrinsic value, economists can always know the direction of real currencies. As of October 2021, the Thai money supply had grown by 5.3%, while the Thai economy is likely to grow less than 2% this year. Therefore, it is not surprising that the baht is depreciating against other currencies because its intrinsic value is falling.
When Nakamoto created Bitcoin in 2008, he did well to give it an initial value of 0.00 as the coin had zero intrinsic value.
Besides being like gambling tokens, can cryptocurrencies take on the role of a medium of exchange as Mr. Nakamoto intended? The answer is a clear Yes and it is happening right now. Cryptocurrencies have taken over the role of fiat money in many countries. An example is Venezuela.
With an annual inflation rate of 1,200%, it would be unwise to hold onto Venezuelan bolivars (the local currency), as they quickly lose their value. Many Venezuelans have cryptocurrencies and convert them into bolivars when they need to make cash payments.
But Venezuela is not the world's number one user of cryptocurrencies for payments; is ranked No. 7. According to the Global Cryptocurrency Adoption Index 2021, the world's No. 1 crypto user is Vietnam.
I suppose it is because Vietnam's economy is growing faster than its financial market can support, particularly for international transactions. Businesses must find a more efficient means of transacting. The use of cryptography provides the perfect answer. By the way, there could be another explanation: fiscal management. Trading cryptocurrencies can avoid reporting income and profits.
At this point, we must distinguish between "digital currency" and "cryptocurrency". Digital currency is nothing more than a digital version of printed money. Digital money does not provide any additional economic benefits other than the convenience of not having to carry paper money.
But cryptocurrency is a completely different story. It could change the course of the world economy.
However, government sponsored cryptocurrency is meaningless because you cannot distinguish fiat money from government cryptocurrency. The Venezuelan government issued a cryptocurrency called "petro" and it failed miserably.
To illustrate the true power of cryptocurrencies. I will give a fictitious example. The real names are modified, of course.
BaBa is China's largest e-commerce platform with 1.18 billion customers (912 million in China and 265 million abroad). What if BaBa wants to create its own Ba currency to use for payments alongside the Chinese yuan on its platform? Buyers can borrow Ba-coin from AND - a fintech subsidiary of BaBa that is the creator of the popular international electronic payment system, Ba-pay - to help spur sales.
Not only can buyers use Ba-coin for payments, but sellers are also encouraged to use Ba-coin to purchase materials from previous vendors. Soon, Ba-coin will be widely used in China and around the world.
The bankrupt real estate company Evergreat could be bailed out by BaBa if someone offered to buy its main assets. The problem is that the payment will be made in currency Ba issued by AND. The individual units of these assets will then be posted for sale on BaBa's website, which is accessible worldwide.
Certainly, interested buyers can apply for Ba-coin loans to buy those assets on favorable terms, such as zero down payments, with no interest charges and very long-term mortgages. Why not? Ba-coin has no cost to BaBa. Remember, cryptocurrency is imaginary money.
In a short period of time, BaBa will control the Chinese economy because it controls the supply of Ba-coin. The Bank of China and the Chinese government will certainly not be pleased. Readers can guess the end of this story.
Smart readers will note that, in this fictional story, Ba-coin gradually develops intrinsic value. The value is the profit of the BaBa platform and the main assets of the former Evergreat group. Virtual currency is now on par with fiat money.
The potential of the cryptocurrency is as great as the creator intended. I am sure that he will achieve that goal, especially when the entire world is over-indebted, which will put the financial sector on the brink of collapse. When central banks are busy printing fiat money to support their economies, don't you want to find reliable altcoins?
Take the case of Thailand. Public debt exceeds 60% of GDP and is increasing, while household debt is 90% of GDP. There is no way that our financial sector can function properly. Cryptocurrencies can provide alternative liquidity for the economy.
Go back and read my fictional story about BaBa rescuing Evergreat. Cryptocurrencies could do the same for Thailand's ailing real estate sector and help extend the life of the travel industry.
Who Needs Commercial Banks? I am ready and willing to be a part of this monetary revolution. If any organization is interested in putting the ideas in this article into practice, I'm all ears.
