29.11.2021

Why do people buy cryptocurrencies: the answer of experts from the Bank for International Settlements

The Bank for International Settlements (BIS) is trying to disprove the theory that cryptocurrency ownership is linked to a distrust of traditional finance. On the eve of the experts of the financial institution published a document on the socio-economic factors affecting cryptocurrency investments in the United States.

Using representative survey data on consumer trends, analysts cited several arguments to support their theory.

Let’s start by explaining the theory. Most of the popular cryptocurrencies are decentralized, that is, they do not depend on any specific authorities. Accordingly, central banks, governments and officials not only do not determine the prospects for the development of certain coins, but even cannot even prohibit their existence. Their maximum is creating problems for trading platforms or increasing regulation, which can frighten off novice investors. Although even this will not be able to stop the work of cryptocurrency networks.

In this regard, many fans of coins see them as a kind of protest against the actions of officials. And indeed it is. For example, the rate of release of Bitcoin is limited: now approximately every ten minutes with a new block, 6.25 BTC appears on the network – and no more. Moreover, the maximum supply of cryptocurrency is 21 million BTC, and it will not be possible to go beyond this limit.

All of this is in marked contrast to what is happening with conventional fiat currencies. Their supply is increasing at a tremendous pace, and the opinion of ordinary citizens on this issue usually does not interest anyone. Therefore, many investors buy coins to protect themselves from the influence of not very clear decisions of governments and the depreciation of ordinary money.

However, bankers believe that the reasons for buying coins are completely different. Or at least this point of view is profitable for them to convey.

Why buy Bitcoin

Here is one quote from the report in which analysts share the details of their research. The replica is provided by Cointelegraph.

The demand for cryptocurrency is not driven by a distrust of cash or the financial industry, given that there is no difference in the perceived security of cash, offline and online banking. Thus, we can preliminarily refute the hypothesis that cryptocurrencies are viewed as an alternative to national currencies or regulated finance.

That is, the crypt is supposedly not an alternative, but just a “niche object of digital speculation.” The BIS noted that from a policy point of view, the general conclusion is that the goals of investors “are the same as for other asset classes, therefore regulation of the cryptosphere must take place.”

The BIS paper also describes the main correlations between cryptocurrency investment choices and investor education / income levels. There is some interesting data: Ethereum and XRP buyers, for example, have the highest level of education, while those who hold Litecoin are the least educated.

cryptocurrency investment chart

Average number of education levels of investors in different cryptocurrencies

The new report attaches great importance to the fact that cryptocurrencies like Bitcoin do not pose a threat to traditional financial instruments, since the demand for cryptocurrency is not driven by a distrust of cash. However, we disagree with this statement: the crypt is often chosen at least because it offers investors higher profitability and volatility compared to traditional financial investments , which means that even this fact is enough to talk about an open confrontation between digital and traditional assets. for demand from consumers.

What is especially important: now entire states recognize BTC as an official means of payment, although international agencies actively criticize this decision. And this also indicates that digital assets compete directly with regular money and are viewed as a danger to the latter.

We believe that the role of cryptocurrencies in the future will be much more noticeable than today – and in many cases, coins will be used precisely as ordinary money. This theory is supported not only by the recognition of BTC as an official means of payment in El Salvador, but also by investments in crypto by world famous banks. And this also makes it clear a lot about the prospects for the development of the digital asset niche.

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