Bitcoin, Ethereum, XRP, EOS, Stellar but also Noku, Oxycoin, BitDice…These names are synonymous with many different realities, but they all fall under the cryptocurrency category. For over a year, the media hype is real and we have all heard stories of new Bitcoin or Ethereum millionaires (even billionaires). Media speak of it as the new Eldorado. People are rushing to purchase this new gold or new oil.
A year later, the situation is as different as it is contrasting. Bitcoin, the first cryptocurrency, went from $4,740 to a little over $7,000, but reached a peak at $19,000 at the end of last year. In the same time, the Ether’s value was divided by two and the currency is now worth seven times less than it was at its height. Did the bubble just burst? Cryptocurrencies, a shooting star like so many others?
We notice a rationalization of the markets, with financial corporations starting to position themselves. Exchange platforms are thriving and growing in numbers (although we only have one in France… Might we be missing out on the phenomenon?). Trading services with very large volumes are surfacing, as are high frequency trading platforms… Without a doubt, there are winners: those who positioned themselves early on and those who developed their tools. Haven’t we always said that the real winners in the gold rush are the pickax salesmen?
And after a period without regulation, state-wise or via the presence of major financial players, we are progressively entering a new era. States are gradually adopting laws to decree, for example, on the status of a currency, of a financial asset as comparable to a share… Tax repercussions are important, whether for the taxation of individuals’ capital gains, or the accounting logic to apply for businesses.
Nevertheless, Mr. Jean-Pierre Landau’s most recent report, which was given to the Minister of Economy and Finances Mr. Bruno Le Maire, calls for caution in wanting to overregulate this area, in order to keep options open for innovation. A simple extension of the current regulatory framework concerning the fight against money laundering and the financing of organized crime and terrorism is currently considered.
We’ve only mentioned the purely financial aspect of cryptocurrency, with few elements regarding payment. It is true that there are no plans to set up a significant number of payment points throughout France, and more generally, Europe. Instead we are witnessing the growing acceptance of Alipay and WeChat, which are much more demanded by tourists or Chinese citizens residing in our countries.
To take things further, everyone has heard of new State-launched “currencies”, sometimes even in free market societies. One example is Venezuela, which launched its Petro last February. The state had two objectives: to stem the depreciation of the Bolivar, their historical currency, but also to bypass the US trade embargo. This trend is probably a point that should be carefully observed from a geopolitical standpoint, since the equilibrium of international financial exchanges could be altered, a scenario favored by Russia. Iran is in talks for the same reasons. Less visible but just as real, the crypto-ruble and the crypto-yuan are in their infancy. Tomorrow’s financial system, which is currently in gestation, may very well exist alongside the one that stemmed from the Bretton Woods agreements.
In the private sector, we are witnessing monetary emissions by businesses. There are a number of reasons for this: a better flow in intra-company exchanges, the optimization of transfer prices, public participation other than through shares, financing…Let us touch upon this last point. Companies market services, the value of which is expressed in tokens, units of value that are exchangeable on platforms. Incidentally, this is the valuation method of the “fan” asset that the Paris Saint-Germain Football Club has unveiled.
The point is to get the public more involved in the success of the company, without going through the intervention of capital interest, which requires more in-depth knowledge, and involves a greater number of intermediaries. It is also a useful resource in financing startups, Initial Coin Offering, where they sell a right to use their future services, with a promise of earnings, and not just when the company is established. Everyday, a new startup raises very large amounts, but not with the traditional approaches of business angels / Venture Capitalists. Speculation was certainly at work, and going through an ICO seemed to be the betting system to not only make one’s investment grow but also to have a startup that took off, found its market… and succeeded! But as often in the world of cryptocurrency, this era is over: controls and ICO quality standards are appearing.
However, ICOs whose reasoning is the monetization of tangible assets, with a community with which the company establishes a direct link, certainly remain a positive evolution in fundraising.
Lastly, and to return to the foundations of Bitcoin and Ether, these crypto-actives were not emitted by a centralized structure, but directly by the community, which guarantees their creation, evolution, maintenance, and through everyday use, establishes their value. Of course, even if the community is not hierarchical, mechanisms of influence in digital social networks are at work and some people / organizations have greater influence. It is, in my opinion, an economic model for the future, with traditional companies, but also decentralized organizations (DAO – Decentralized Autonomous Organization). In other words, the transition of a Producer to Consumer business model to a Collective to Consumer model. Could this be a modern and digital version of the cooperative?