Bitcoin accounts for nearly 40% of the total market cap, with $179,132,046,500 for nearly 16.88mn bitcoins mined; or approximately 80% of the maximum amount of 21mn available for mining. Nearly everyone I’ve discussed with has already heard about bitcoins. Some have a solid opinion on what a cryptocurrency stands for, while others have heard about it but unsure of what it is, and are curious to find out more. But the truth is, the name ‘bitcoin’has spread beyond the community of technology enthusiasts and alternative investors.
Has the cryptocurrency become ‘too big to fail’, ‘too big to disappear’ or simply ‘too big to ban’?
The concept of ‘too big to fail’ signifies that some institutions, such as big banks, are too large and too interconnected that the failure of one would trigger a domino-effect and have a greater impact on the economic system. Looking at the total size of the crypto-market, we could have a rough opinion on the importance of this market compared to the rest of the financial world.
The total market cap of cryptocurrencies stood at $485,592,032,675 as of Feb 21 2018. This is 20% larger compared to 10 days earlier, and already one tenth of the total amount of assets in the Federal Reserve’s balance sheet. The growth pace is impressive.
Yet, the market capitalization of the cryptocurrencies is still far lower from the Dow Jones industrial index ($6.77 trln) and the S&P500 index ($24.05 trln).
In terms of market capitalization, this amount is not too big to fail just yet. However, if the cryptocurrencies overcome security and regulatory challenges, the crypto-market could grant their existence.
In November 2017, Lloyd Blackfein, the CEO and Chairman of Goldman Sachs said although he is not comfortable with bitcoin, he’s open to the idea of trading bitcoins, if it became a more established, stable currency in the future.
‘Once upon a time a coin was worth 5 dollars, you could have $5 worth of gold with it. Then a piece of paper was worth five dollars, but only if it was backed by gold in treasury, or silver, or a silver certificate; even back then, people were suspicious. Now,we have paper that’s only backed by fiat’, concluding that in the new world,something that’s backed by consensus instead of government fiat could be ‘a consensual arrangement by people that agreed that it is worth something’.
If bitcoin and other cryptocurrencies reach this level of confidence, they could be considered as too big to fail.
‘Too big to ban’?
For policymakers,cryptocurrencies trade on unregulated markets, where value creation happens beyond laws and borders.
But, the decentralized character of cryptocurrencies and peer-to-peer transactions could make it hard for governments to ban the exchange of cryptocurrencies.
Given the actual size of the market and the pace of expansion, the regulation of the crypto-markets appears to be a more likely scenario. In this case, it could be safe to say that the crypto-markets have become too-big-to-ban.
Cryptos: a new asset class
Under regulation, the cryptocurrencies will certainly be considered as a new asset class, which needs to find a place among the traditional asset classes.
The appellation of ‘currency’could be confusing, given that only the central banks have the sovereignty to‘print’ money, to control the amount of cash circulating in the economy. By acting on the market liquidity, central banks regulate the economic fundamentals such as economic growth, inflation and unemployment. Therefore, the existence of alternative currencies could be threatened in the future.
But this is not true if crypto-coinsare considered under a new regulation, such as investment vehicles which gainin value in the same way than a cryptocurrency, without however threateningcentral banks’ sovereignty on monetary base.
This would involve regulation,including declaration of holdings and taxes to create a parallel with the existing system, but would not impend over at least one fundamental use of most of cryptocurrencies: decentralized market based on blockchain technology.