A Ride on the Cryptocurrency Rollercoaster!

Brian Laverdure

By: Brian Laverdure, AAP, Director, Emerging Payments

Cryptocurrencies and their wild rides of valuation are back in the news! If you are a close, or even a casual, follower of financial news then you have likely heard about the recent decline in the value of various cryptocurrencies. Year to date, the value of one bitcoin has plummeted from a high of almost $18,000 in early January to approximately $6,200 as of the week of August 13th. To bitcoin advocates, this rollercoaster of value is nothing new—the short history of cryptocurrencies is replete with numerous swings—and many of them shrug it off as just another cycle. However, to most Americans and many EPCOR members, cryptocurrencies remain an obscure concept. Most of us do not understand the market fluctuations, let alone what a bitcoin is or how it functions.

The debate over cryptocurrency often boils down to two questions—what are cryptocurrencies and how should they be regulated? The first question may seem simple at first glance, but countless papers by esteemed economists and legal scholars suggests otherwise. Cryptocurrencies do not share all the attributes of the currency now in your wallet or pocketbook—those dollars you carry have a physical shape (bills, coins), are exchanged for goods and services and hold their value over time. On the other hand, cryptocurrencies do not have any physical form; if you see any stacks of gold bitcoin coins in ads or on TV, you are only seeing an artistic representation.

Cryptocurrencies exist only as information stored in computers. They are also not widely accepted as payment for goods and services—although you may see some websites or even a few hip local coffee shops choose to accept bitcoin or one of the other cryptocurrencies. A clear majority of American businesses continue to favor traditional payment methods. And finally, the second question, what is the value of a bitcoin today? Will it be the same next month? Cryptocurrencies fluctuate in value so frequently that many economists question their ability to serve as a store of value.

While that brief analysis probably sounds academic to a lot of readers, the debate over the nature of cryptocurrencies informs the debate over how authorities and governments can or should handle them. Right now, there is a robust discussion across the world and here at home over how to classify cryptocurrencies, how to regulate them and how to determine which regulatory body or bodies should be responsible for them.

Are cryptocurrencies privately issued monies, or should we consider them as digital assets more analogous to real world assets, like gold? Then again, with the rise of initial coin offerings providing a new way for companies to raise capital, perhaps some types of cryptocurrencies share more in common with traditional securities. Few things are certain in the ever-changing world of cryptocurrency but for one—definitive answers are often lacking leaving questions always abound!

I will explore this topic in more detail during our Cryptocurrency: Origin, Uses, & Future webinar on September 26th. If cryptocurrency, or the future of payments in general, interests you or someone else at your institution, I encourage you to join me as we talk more about how this new technology started, how it functions and where it may or may not go in the future.

For more information on registration, click here.