The central banking system may be diverting towards cryptocurrency


A central bank is an institution that plays an integral role in the interlinked economies of the world.  It provides financial and banking services to commercial banks and the government. It may or may not be controlled by the government but has the privilege to formulate the country’s monetary policy.

Central banks are non -competitive and politically independent institutions and control money production and distribution across the countries.  A central bank is a lender of last resort to other commercial banks as it offers loans to banks experiencing severe financial difficulty.

Central banks are entirely different from commercial banks as you can not deposit money in them. These banks may or may not be nationalized, but they are protected by law in both cases.

They are given several responsibilities, including printing and issuing notes and coins, setting monetary policy and interest rates on loans. Although these central banks seem like a magic tree, printing money whenever required. But the problem is when a central bank fabricates new money, the real value of a unit of money decreases, and inflation increases.

In the United States, Federal Reserve was established like other central banks to stimulate economic prosperity. Its primary function is to keep the prices stable and prevents them from rising or falling abruptly. Federal Reserve keeps the inflation rate of 2% per year by influencing interest rates. When inflation is high, it increases the interest rate to slow the economy and bring inflation down and vice versa.

Over time, due to increased digitalization globally, the central banking system around the world is trying to introduce cryptocurrencies (digital currency ) such as Bitcoin and Ethereum.

Many companies are successfully relying on cryptocurrencies, such as Bitcoin, as their source of trade. Considering the success of digital coin exchange worldwide, the global economy is shifting to adopt digital currency.

Even the Federal Reserve plans to build and test a hypothetical design digital dollar. Virtual currency is a decentralized or global digital currency. Decentralization means it would not be controlled by banks or government, and trade can be made freely across the borders.

It involves only the sender and receiver without a third party to monitor your transactions. It is easy, safe, and 24/7 functional, regardless of weekends and holidays.

Cryptocurrency might be the best option if you perform many transactions every month as there would be negligible or no charges for transactions. It allows people to transfer virtual money through the internet without banks or exchanges.

Another advantage of cryptocurrency is an encryption technology that allows the transactions to operate without a single point of failure to protect from hackers. All the blockchain and cryptocurrencies are digitalized, and they can be tracked. Once you transfer virtual money, it can not be reversed and manipulated, which reduces the risk of fraud.

What people on Twitter are saying:

How has Bitcoin taken the market by storm after Tesla announced its investment? 

The past century witnessed a huge swing towards digitalization. Being more convenient and efficient, it has successfully swapped our traditional outlook of life. Considering the positive impacts of digitalization, many firms and people also started investing in digital currency, especially bitcoins.

Owing to its enormous advantages over physical currency, bitcoin is experiencing a steady surge since the end of the last decade. Even its rising value urged several companies to accept payments through cryptocurrency.

BNY Mellon commits to hold, transfer and issue cryptocurrency:

Considering the growing interest in digital currency, America’s oldest bank, BNY Mellon, also decided to add bitcoins to their business model. The bank announced the formation of a Digital Assets unit, helping clients hold, transfer and issue digital assets, including cryptocurrency.

According to Roman Regelman, the CEO of Asset Servicing and Head of Digital at BNY Mellon, they are the first to announce such a digital asset platform. Mr. Roman also confirmed that the Digital Assets unit is expected to offer its solutions and capabilities later this year.

Meanwhile, the world’s largest digital currency, bitcoin, has taken over the cryptocurrency market. It was trading below $11,000 in Oct 2020 and sky rocked $42,000 on Jan 9, 2021. But,  what caused the bitcoin to shoot?

Tesla’ investment enticed the firms to rush in:

Bitcoin prices continue to shatter all previous records after Elon Musk’s Tesla revealed a $1.5 billion investment in bitcoin on Feb 9. Tesla also announced its plan to start receiving bitcoins as payment for its car in the future.

The announcement triggered investors, causing the bitcoin value to shoot above $48000 on Tuesday morning. It was the first time since March 2020 when bitcoins managed to gain over 1000% profit.

According to Tesla, the board in January decided to update its policy, so it’s flexible and helps diversify and maximize returns on its cash. The company also signaled to invest in alternatives reserves assets such as gold bullion, digital assets, and gold exchange-traded funds in the future. 

As Tesla announced to hold some of its idle cash in the form of bitcoins rather than physical currency, other companies also rushed to amass bitcoins, driving its price to an all-time high.

MasterCard announced to integrate Cryptocurrency in its payment network:

Tracking the customers’ inclination towards digital currency, MasterCard also announced integrating crypto payment in its payment network later this year.

According to Mastercard, it will go along the digital currency, complying with anti-money laundering laws while ensuring customer information and data security. However, the company has not specified yet, what kind of crypto it will accede to. So, experts wonder whether a currency meeting all requirements exists or a new one is coming out soon?

Jack Dorsey and Jay Z are on the way to make Bitcoin “the internet currency”:

On the other hand, Twitter CEO Jack Dorsey and American rapper-entrepreneur Jay Z collaborated to set up an endowment trust named “₿trust” in India and Africa. According to Dorsey, “Btrust will be formed as a blind irrevocable trust taking zero direction from us.”

The fund will help develop cryptocurrency’s adoption initially in India and Africa. According to Dorsey,  he and Jay are envisioned making Bitcoin “the internet currency,” so they pledged to invest 500BTC($23.7million)  into the fund.

The announcement came just after the Indian government planned to introduce its own digital currency, banning all other cryptocurrencies, including bitcoin. So, let’s see what comes up next?

Experts say, Bitcoin is going to perform well but what if its supply is exhausted?

According to Michael Novogratz, the cryptocurrency firm Galaxy Digital, bitcoin will continue to perform well. He said the digital coins’ prices are anticipated to exceed $100,000 by the end of this year as the big firms got in.

No doubt, bitcoin, referred to as the “gold of crypto coins,” draws more and more stockholders to invest in, but it has limited availability.

In fact, there are only 21 million bitcoins that can be mined, out of which 16.9 million (88%)are already in circulation. Once miners have unlocked the total, the supply will be exhausted.

Investors believe, once the supply runs out, bitcoin’s price will only boom further. So they are looking for another digital currency to make a profit. In this scenario,  there are chances that a new cryptocurrency might be coming out soon.

As Tesla revealed its investment, the digital coin price continues to surge, and according to bitcoin bulls, it is just the beginning. On Tuesday, the CEO of social Capital told CNBC that bitcoin is not going to stop up. It’s going to hit $100,000, then $150,000 and then $200,000, in next 5 to 10 years.

Why are some investors concerned to amass Bitcoins?

 

However, many investors are still baffled by all this hype to buy bitcoins,  believing it is too risky and prone to fraud. According to James Ledbetter, the fintech newsletter FIN editor, bitcoin is a highly volatile and risky investment. He said, digging into the past reveals that its value collapsed quickly after reaching a peak several times.

For example, in 2017, bitcoin reached a spike of $20,000.However, it dwindled to$3,122 in a single day of 2018, erasing billions of dollars from the digital coin market. So, if you are investing in bitcoins, you need to be financially and mentally strong enough to bear the loss.

Conclusion:

 

Since the start of 2021, cryptocurrency has bound its spell on the financial market around the world. In this scenario, the world’s most stable cryptocurrency, bitcoin, has become the lucrative option for stockholders to invest in. Especially after Tesla disclosed that it bought bitcoins worth $1.5 billion, its value is going through the roof. Several global firms announced to embrace digital currency as a payment option to their operation. Still, some firms are hesitant to stockpile crypto coins; calling is highly volatile and risky.

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