Cryptocurrencies are rising, with a current market capitalization of $170 billion. This is a small fraction of the overall global financial markets, but it grows rapidly. The market cap for all cryptocurrencies was just $17 billion at the beginning of 2017. Experts like Dan Schatt and others believe this rise will turn the traditional game of investing on its head.
Why is this happening? There are many possible explanations, but the main factors seem to be the move toward mobile computing and instant transactions. The former has created a massive industry of highly-valued companies that enable people to access the internet from anywhere in the world and use their services on mobile devices instead of desktop computers. In addition, instant payments have been enabled by near field communication (NFC) technology, which allows devices to communicate with each other when they are in close proximity.
Cryptocurrencies are a natural extension of this trend. They allow for fast, secure, and anonymous transactions. This is a big draw for some people, as traditional payment systems like Visa and PayPal can be slow and cumbersome. Cryptocurrencies also offer the potential for price appreciation, as the total value of all cryptocurrencies is still relatively small.
How will traditional investors be affected by this trend? There are a few potential scenarios.
Scenario One: Very Little Impact
The first possibility is that the rise in cryptocurrency will have little impact on traditional investors. However, this seems unlikely, as the increasing popularity of cryptocurrencies suggests that they will eventually significantly impact the market.
Scenario Two: Increased Use of Cryptocurrencies
The second possibility is that traditional investors will start to use cryptocurrencies more frequently. This could happen if they become more comfortable with the technology and the security of the transactions. It’s also possible that traditional investors will start to see cryptocurrencies as a way to get around currency controls put in place by some countries.
Scenario Three: The Allure of Cryptocurrencies May Turn Some People Away from Traditional Securities
The final possibility is that traditional investors will be lured away from traditional securities toward cryptocurrencies as they appreciate. For example, a bond may offer 2% interest per year, while cryptocurrencies like Bitcoin offer 20% or more. Again, this could lead to a flight of capital away from traditional investments and into cryptocurrencies.
Scenario Four: A Mix of the Above Three Scenarios
It’s also possible that traditional investors will start to use cryptocurrencies more frequently while also seeing them as a way to get around currency controls. In addition, they may be lured away from traditional investments into cryptocurrencies as they appreciate. This would lead to a mix of the three scenarios described above.
Which scenario is most likely to occur? It’s difficult to say, but it seems likely that at least one of these scenarios will play out in the coming years. Traditional investors should pay close attention to the rise of cryptocurrencies and be prepared for the changes that are on the horizon. No matter what happens, it’s clear that the financial landscape is about to change dramatically.
