Spending Cryptocurrencies, Not Holding Them Brings Business?
Ever since Bitcoin and other major cryptocurrencies became tradable assets, most people used to see them more as commodities or securities that can be bought and sold for profit or as a form of savings that hold value. They are neither of these, however. The cryptocurrencies are not securities, as they are not regulated and do not have a rationally measurable value. They are definitely not commodities like gold is, although they have some characteristics of a commodity.
The biggest problem with digital (crypto) currencies has always been related to recognition, trust, and usability. Starting with the Bitcoin they are largely unrecognized and therefore met with skepticism. Most people consider them unreliable. Finally, cryptocurrencies have limited usability as a form of payment.
The high volatility of the unregulated crypto markets often results in a sharp drop in the cryptocurrencies value. This has happened multiple times in 2021 and 2022. $1.5 trillion evaporated from cryptocurrency markets within the last 6 months. The recent drop in the cryptocurrencies' value happened in May 2022 when the price of Bitcoin and other cryptos decreased by 25 percent. They might regain their value as has happened before. However, no one can actually make a credible projection for that. Experts like Scott Minerd, the Chief Investment Officer of Guggenheim, forecasted that the Bitcoin price would decline to $8,000 from its current levels ($28,000). The same expert, however, once projected in December 2020 that Bitcoin would climb to $400,000.
The simple truth is that the market of digital currencies is so complex and depends on so many variables, that it is virtually impossible to make a credible mid-term projection. Despite that many people claim to be in the business of making such.
One of the very important questions that still does not have an answer is whether digital tokens have to be considered for legal purposes, more similar to stocks or to commodities, like gold? In the U.S. institutional investors have been asking this question for quite some. Now it is up to the American courts to decide the existential question for the cryptocurrency industry.
On May 26th, 2022 The Wall Street Journal reported that "Attorneys for cryptocurrency-trading platform Coinbase Global Inc. filed a motion to dismiss a class-action lawsuit arguing that 79 of the tokens listed on the firm’s platform are unregistered securities."
According to the WSJ, a group of Coinbase users is demanding reimbursement for trading fees and market losses. They seek to prevent certain assets from continuing to trade on the Coinbase platform. Assets targeted in the lawsuit are XRP, Cardano, Solana, and Dogecoin. These are four of the ten largest cryptocurrencies by market value.
In the U.S., the Securities and Exchange Commission (SEC) has not indicated whether and which cryptocurrencies must be considered securities. The U.S. federal statutes passed in the 1930s, however, deputize ordinary investors to help the SEC do its job, by giving buyers of unregistered securities the right to sue the seller for their money back.
So, we would expect that a legal process in the American federal institutions - both in the SEC and courts - will have a significant influence on the way the cryptocurrency market will function in the future. Any legal definitions and regulations that would be applied to the cryptocurrencies and crypto trading in general, will make them more reliable and therefore less speculative. Still, it is not up to the American courts or the U.S. Securities and Exchange Commission to decide the most important aspect of the digital currencies - their usability.
From Financial Assets To Purchasing Capacity
The recorded losses of $1.5 trillion in 2022 due to the cryptocurrencies value decrease are changing the way the holders of digital currencies look at the cryptos. Many who have invested in cryptocurrencies begin to realize that digital currencies are still too risky to be used as assets to hold value. So, many crypto holders have started considering the purchasing capacity of their cryptocurrency assets.
After seeing my own crypto assets losing 2/3 of their value in fiat currency since peaking in November 2001, I have totally changed the way I look at crypto. I'm not keeping cryptocurrencies anymore with the purpose to sell them in the future when their price would eventually go up. All projections about the imminent growth of Bitcoin and other cryptos are simply untrustworthy and hazardous, especially for those who have significant reserves in digital assets. It may take a few years for the cryptocurrency market to recover and come back to its level from November 2021. Waiting passively for such a thing to happen is irrational economic behavior.
On the contrary, spending on cryptocurrencies brings business and increases the value of digital currencies because it increases their usability. If all coffee shops on the planet announce for example that they have started accepting Bitcoin payments directly to their own digital wallets, without conversion into fiat currencies, this will increase the value of the Bitcoin and will make it indisputable global digital currency. Companies like ServerWhere.com have established a business model based entirely on the use of cryptocurrencies. Thus they offer the crypto holders the opportunity to convert their crypto into goods and services, that themselves create value for the business buyers.
Individuals and organizations that use Bitcoin or any other crypto to pay for tangible or intangible items turn immediately their digital currencies into a successful business. Those who purchase any intangible goods, for example, IT infrastructure-as-a-service such as Dedicated Server Hosting or Cloud Servers, get guaranteed profits. By liquidating some of their crypto assets, they resolve a major issue - the risk of loss of value.
Economic activity brings value. In the process of purchasing goods or services, the crypto holders also acquire an economic capacity that they subsequently use to produce products and services. So, instead of holding digital coins as passive assets, waiting for their value to grow, owners can put their crypto reserves to work by covering business expenses and purchasing capacity.