Allianz chief economic advisor and former Pimco CEO Mohamed El-Erian said the current phase of growth in the cryptocurrency market «reflects three things.» There are three types of blockchain investors that central banks should be worried about right now, he said.
The expert, who is also president of Queen’s College Cambridge and a member of the Under Armor board of directors, made the statement in response to a question at a seminar for business journalists hosted by the Wharton School at the University of Pennsylvania.
To begin with, we note that today you can meet cryptocurrency investors from almost all social strata, positions and views. One of the most prominent examples of cryptocurrency enthusiasts in recent months is Miami Mayor Francis Suarez. He communicates with Bitcoin billionaires and the founders of the Gemini cryptocurrency exchange, the Winklevoss brothers, knows the benefits of decentralization, and sees blockchain assets as the future of investment.
In this regard, he talked about the desire to invest part of the city’s funds in the first cryptocurrency to make Miami an even more modern place to live. Well, last week Francis announced his readiness to spend his personal funds on coins. At the same time, from the possible options for investment, he pre-selected Bitcoin, Ethereum and Dogecoin, which Elon Musk actively mentions.
However, today we will talk about a different classification. At the same time, as its author Mohamed El-Erian notes, each of the representatives of cryptocurrency investors is a serious cause for thought for the representatives of banks.
Who buys bitcoins today
The first group of crypto investors are those who «sincerely believe that Bitcoin will become the equivalent of world money, that is, a full-fledged currency, and not a commodity or store of value . » For central banks, which now hold a monopoly on the issue of money, this is not the best news, since then their role in the world will become much less significant.
The second group is those «who were forced to invest in Bitcoin for negative reasons.» Here is a quote from an analyst in which he shares his attitude to what is happening. The cue is from Decrypt.
Investors are pushed out of everything else and pushed into the cryptocurrency market. It’s like marriage. Why do they do it? Because they don’t know how to further reduce the risk. Do you really want to invest in government bonds that are artificially overpriced? So, «let’s diversify, let’s invest 2 percent in bitcoins.» You do this for negative reasons to protect yourself; the first type of investor does this for positive reasons.
That is, in this way, investors want to protect themselves from the possible consequences of the pandemic and the mass printing of money, which governments have engaged in. Here, cryptocurrencies act as an independent asset, the maximum supply of which, in some cases, is even predetermined. This means that we will definitely not talk about the additional emission of the same bitcoins.
Third camp? These are speculators, the expert said.
Where else can you get 20 percent profit or loss in one day?
Indeed, cryptocurrencies can jump in price – including up. For clarity, we present the results of the behavior of the prices of CAKE and BURGER tokens. These are coins of decentralized exchanges on a relatively new blockchain from the Binance cryptocurrency exchange called BSC.
For example, PancakeSwap (CAKE) is up 883 percent month-over-month, given the current market downturn. Here is a chart of the coin over ninety days.
And here is the data for Burger Swap (BURGER), which increased 634 percent in a month.
All three groups, according to the expert, «should be concerned about the central banks.» And that’s why.
When Bitcoin is trading above $ 50,000, all three groups of investors create problems for central banks. Thus, we will see that the Central Bank will increasingly look at cryptocurrencies as something that they should be passionate about, and not just watch.
At the end of his speech, the economist also touched upon the issue of Elon Musk, Tesla and the company’s large investment in Bitcoin. According to El-Erian, «Elon’s life would be much easier if he decided to stay away from cryptocurrency.» Musk now has a logical economic incentive to pump up the price of BTC, as his company’s profits are now heavily dependent on it.
And that’s half the trouble: just recently, there was a rumor on the network that the US Securities and Exchange Commission was preparing to study Musk’s activities on Twitter, whose entries provoked an 800 percent rise in Dogecoin.
That is, the analyst assumes that it was a mistake for the billionaire to get involved with the topic of cryptocurrencies. At least in the format in which it happened. At the same time, we believe that such statements are hardly relevant, because Tesla did not go all-in and did not invest all its free funds in BTC, which means that the risk for it is relatively small. And Elon has already gone through lawsuits because of his tweets, so this is unlikely to seriously affect the value of the company’s shares.
We believe that representatives of central banks should really think about the activity of cryptocurrency lovers, but they are unlikely to be able to do something about it. Perhaps, here they will only be able to create various services for storing coins, which will be used by less experienced blockchain users. Or make decisions for the quick acquisition of cryptocurrencies.
However, here it is important not to forget that in the future banks are waiting for us from full-fledged cryptocurrency exchanges. The Kraken platform was licensed to launch this in September 2020.