2018-7-23 11:55 |
The financial crisis that took place back in 2008 and that hurt most of the countries all over the world is still very fresh in the minds of those operating in Wall Street and in the cryptocurrency world. But there is an important differentiation between these two groups, Wall Street survived the crisis, while the crypto community exists because of this crisis.
Indeed, Satoshi Nakamoto created Bitcoin with the intention to be far away from Wall Street companies and traditional financial institutions. And it was possible to give people power to deal with their own money and funds.
The Role Of The Federal ReserveThe Federal Reserve is the central banking institution of the United States and one of the most important around the world. It regulates, among other things, long-term interest rates. And indeed, this has been, for economists, as one of the main factors in the recession that the US experienced in 2008.
The Fed imposed interest rates of 1% and investors started to look for assets that were not so liquid. It was almost impossible for some institutions and investors to put their funds in banks, because they were giving very low interest rates. Because of this situation, investors decided to enter the stock market, and also the real estate one. And this was just the very beginning of subprime mortgages on housing.
After a very big boom in the housing sector, the supply outgrew the demand and the Lehman Brothers bank had to declare bankruptcy while holding assets valued around $600 billion dollars.
After this situation, which affected the whole world, the emergence of Bitcoin surprised the market. The cryptocurrency, that works as a trustless and decentralized method of holding value, has changed the way we understand the financial world.
Currently, Bitcoin is the most popular and known cryptocurrency in the market and one of the favorite to store value. At the moment, Bitcoin is very volatile, but in the future the situation can be different, and indeed, there are some experts that believe that it can eventually replace gold.
The Regulatory SituationCurrently, there is no clear regulatory framework, but some derivative products in the crypto world have started to emerge. Back in 2017, futures contracts were approved by the US Securities and Exchange Commission (SEC) which are now processed by the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME). At the same time, in August, the SEC may approve the first exchange-traded fund (ETF).
Moreover, some important traditional financial institutions have entered the crypto and blockchain market. Banks can benefit by embracing distributed ledger technology and other crypto-related services. We can mention JP Morgan Chase, Goldman Sachs, and many others.
It is important to mention that Bitcoin is not considered a security, but regulators are worried about the volatility in the market. But during the last years, volatility in the market has been reducing, and in the future, the price of the famous virtual currency may be more stable.
The regulatory reform that took place in 2011 offered greater clarity over the situation, and also generates a new question: what will be the catalyst factor for the next market crash?
Well, some individuals and experts think that the crash may be related to the 45th President of the USA, Donald J. Trump. Due to the position it has taken with the Federal Reserve, the President might be trying to prioritize short-term political goals by modifying some key aspects at the Fed.
The Federal Reserve works with 7 members on its board, but at the moment there are just three. Two of these have to be appointed by the president directly, and two more are still awaiting for approval from the Senate. Those two were also nominated by Mr. Trump. And after this approval, two more will have to follow this nomination process.
6 out of 7 board members will be nominated by Trump? It seems very possible. Trump believes that rates must go down, allowing the economy to grow faster, devaluing the U.S. dollar and incentivizing spending.
Furthermore, some companies and individuals will be also searching for riskier positions, something that led to the crash in 2008. At the same time, inflation of the US dollar will also be contrasted against Bitcoin, which is a deflationary currency. At the same time, this cryptocurrency will also be receiving key support from regulators.
There are different proposals all over the world to regulate cryptocurrencies, including Bitcoin and the so called Initial Coin Offerings (ICOs). As mentioned before, an ETF may also help the market receive institutional investors that will be contributing to the crypto world. All of this will help the space to be more mature, and consequently, accepted by more and more individuals.
At the moment of writing each Bitcoin can be bought for $7,600 and it has a market capitalization of $130 billion dollars.
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