Cryptocurrencies growth leads to huge potential
KUALA
LUMPUR: With cryptocurrencies growing as a global asset class, analysts see huge potential for integration with other technologies.
As such, regulators and central banks will eventually have to adopt the distributed ledger technology (DLT) and embrace cryptocurrencies as a financial asset.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that since the Bitcoin (BTC) network was set in motion in January 2009, there are now more than 4000 digital currencies in existence with total market capitalisation of more than US$1.5 trillion.
“The rise of cryptocurrencies’ value on the market has prompted many investors to include cryptocurrencies, especially BTC in their portfolio,” Kenanga Research said.
“Even though cryptocurrencies are a relatively new financial instruments, their usage has increased significantly due to its decentralised nature.
“In 2020, cryptocurrencies have been the best performing asset as evidenced by the Bloomberg Galaxy Crypto Index, a gauge of cryptocurrencies, which is up by 276.7 per cent, outpacing gold, stocks, bonds and commodities.”
According to Kenanga Research, the crypto index has almost doubled in the first two months of 2021 as BTC’s price stabilised around the US$48,000 to US$50,000 level, leaving other asset classes in the dust.
“Moving ahead, as cryptocurrencies grow as a global asset class, we see huge potential for integration with other technologies.
“Therefore, sooner or later, regulators and central banks will have to adopt the DLT and embrace cryptocurrencies as a financial asset.”
The research arm gathered that in an attempt to control the growing clout of cryptocurrencies, a growing number of central banks are currently working towards creating their own digital currencies.
“Dubbed central bank digital currency (CBDC), it would create digital tokens and blockchain technology to represent a country’s official fiat currency and regulated by its respective monetary authority.
“So far, no country has officially issued any CDBC yet.”
Kenanga Research highlighted that the emergence of cryptocurrencies and the recent rally have captured international attention, with discussion about its future centered around topics such as mode of
The rise of cryptocurrencies’ value on the market has prompted many investors to include cryptocurrencies, especially BTC in their portfolio.
Kenanga Research
payment, company assets and international reserve.
On the mode of payment, Kenanga Research noted that the innovation and technology of cryptocurrency provide a cheaper and more efficient payment solution for merchants and consumers.
“Cryptocurrency payment typically charges lower or zero fees than the regular and standard credit card payment or bank fees.
“Cryptocurrency payment services also allow a borderless payment network from anywhere around the world, any amount of transaction and through any devices, making it an attractive alternative to the traditional banking system.”
As for company assets, the research arm recalled that since the US Fed and major central banks have embarked on a massive expansion of their quantitative easing program, investors and institutions are increasingly concerned about the long-term value of fiat currency.
It also noted that this has fueled the search for alternative assets, such as cryptocurrencies, to hedge against inflation.
“Leading the market is MicroStrategy, a company that develops mobile software and provides cloud-based services.
“The company has adopted BTC as its primary reserve asset and already accumulated 91,064 BTC (US$4.6 billion) as of March 7.”
On the topic of international reserve, it has been noted that a global reserve currency is the one that eases cross-border trade, including investments and debt obligations.
Kenanga Research added that global central banks usually hold reserve currencies to stabilise foreign exchange rates and conduct monetary policy.
“According to the International Monetary Fund (IMF) research paper, four factors drive demand for a reserve currency: the economic size, credibility of issuers, transactional demand between parties and inertia.
“The US dollar scored in all four aspects and has been the main reserve currency since the Bretton Woods agreement in 1944.
“In recent years, cryptocurrency has been increasingly used for international transactions with a huge potential to expand in the future.”