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March 22, 2021

Finita la comedia: central banks to tighten reins on crypto market

 While bitcoin continues its stellar rally, many central banks, as well as the governments, still deem the crypto market as a dangerous and volatile one. The thing is that it is not beneficial for any government in the world to have such a decentralized means of payment. To this end, there is no doubt that sooner or later the central banks will make attempts to take control of the crypto market. Currently, it is difficult to predict how they could achieve such an ambitious goal. Notably, many central banks have already expressed their intention to create state-owned digital currencies, trying to squeeze cryptocurrencies out of the market and making them less attractive to investors. However, experts wonder whether demand for these state-owned digital currencies will be high. The main feature of cryptocurrencies is that they are anonymous, not controlled by governments. The second main feature is that they are an excellent investment instrument. There is no need to say that the state-owned digital assets lack both qualities. They will be just a usual means of payment like fiat money. Thus, the central banks' plan to make the crypto market a regulated one is doomed to failure. The regulators can also simply ban cryptocurrencies. However, such a decision will not bring anything good as well. Bitcoin is mined from the code. It does not require a physical storage location. The owner of bitcoins can live in India where virtual money is prohibited while owning a crypto wallet on US servers. Therefore, an attempt to ban bitcoin can be compared to an attempt to block access to some websites, given that every browser has a built-in VPN. Governments may try to use software that has not yet been created to track all bitcoin transactions to identify their owners. However, such technology is still underway and unlikely to be developed in the near future. Nevertheless, even these obstacles will hardly stop the governments from finding a way to control the cryptocurrency market. Curiously enough, bitcoin could advance even more amid growing governmental pressure.


Analysts at Deutsche Bank are sure that bitcoin can no longer be ignored. It will continue to grow, attracting new large investors. According to the bank's experts, the number one cryptocurrency is still highly volatile despite exceeding the capitalization of one trillion dollars. In 2020, the total number of mined bitcoin amounted to 28 million coins, which was equivalent to 150% of the coins. For example, last year, Apple shares showed only a slightly larger turnover. Thus, analysts are confident that even a few large transactions on bitcoin may have a significant impact on its value. Deutsche Bank also calculated that about 70% of bitcoin transactions are investment ones and only 30% are payment transactions. At the same time, experts believe that the current price of bitcoin is overvalued. To justify such a high cost, bitcoin needs to become the most preferred means of international settlements. The bank also notes that the current value of the cryptocurrency is supported solely by traders' faith in it. Experts believe that central banks and governments will tighten their reins on the crypto market as its unpredictability and volatility pose a threat to the whole financial system.