Cryptocurrencies Take Lustre Off Gold

In recent months, an unbridled spike in the value of cryptocurrencies, especially the Bitcoin, has taken the lustre off gold, stock markets, oil, and other major commodities as avenues for investment. These days it seems everybody is eager to jump aboard the cryptocurrency bandwagon. Even as the global economy has slumped amid the ongoing COVID-19 pandemic, investors have diverted their investment towards Bitcoin and other digital currencies to make quick financial gains

Digital Currencies of UAE, China, UK, Turkey and Russia

At present, the United Arab Emirates (UAE) is the only country in the world that has launched government-backed cryptocurrency Emcash, since 2017. However, this currency could not get much limelight like leading digital currencies in the world.

And seeing a consistent phenomenal growth in demand and value of Bitcoin and other major digital currencies, China and Turkey have already started trial-trading their digital currencies while the United Kingdom too has announced its plans to launch its own cryptocurrency.

The officials of the United Kingdom have launched the slogan “Britcoin not Bitcoin” which means the British government plans to launch its own digital currency in coming months. The upcoming Britcoin is expected to give a tough time to Bitcoin because Britcoin will be backed by the UK’s central bank and this digital currency will have legal protection unlike Bitcoin and other major cryptocurrencies.

Meanwhile, the UK’s Pound Sterling is also more valuable than the US dollar (1.39 exchange rate of Sterling vs US dollar as of 3 May 2021) and factor will give support to the Britcoin when it is launched. There can be some disadvantages for Britcoin. For example, the British government may not allow use of this digital currency for money laundering, drug, and weapons’ smuggling.

It is a common perception that Bitcoin is being used for money laundering, purchase and smuggling of drugs and weapons. Furthermore, anyone can buy online Bitcoin and any other digital currency with legal or illegal money, but this may not be possible in the case of Britcoin in which the investors may be asked to use a bank account to buy the UK’s digital currency.

Notably, China has recently launched its Digital Yuan on a trial basis in its three major cities – Shenzhen, Suzhou, and Chengdu. China’s intention in launching this digital currency is to minimize circulation of its fiat currency (paper-backed official currency) and to promote the fast-dominating culture of trade and investment with digital currencies.

Digital Yuan will be tradable online globally soon. Once the trial phase completes successfully in 2021, China will maximize the scope of online availability and trading of Digital Yuan. Chinese officials are of the opinion that they are implementing measures that will make impossible the use of fake Digital Yuan.

Unlike Bitcoin and other leading cryptocurencies, Chinese Digital Yuan will be provided to people through commercial banks only. In other words, only people having bank accounts of Chinese currency will be able to obtain the Digital Yuan. A system is also being tested to ensure smooth online trading of this digital currency in China and elsewhere.

Turkey is also launching its digital currency through its central bank during the second half of calendar year 2021. Turkish Central Bank President Naci Agbal said that the digital currency will be launched as a pilot project before a full-fledged launching of Turkey’s digital currency.

Turkey has been doing homework to introduce the Central Bank Digital Currency (CBDC) since 2019. To achieve this goal, Turkish authorities, at present, are testing their software for the trading of CBDC on the pattern of digital Lira.

In March 2021, Russia’s largest bank, Russian Sberbank (Sber) sought permission from the central bank to introduce its own digital currency, Sbercoin. After approval from the Russian central bank, Sbercoin trading will begin in Russia very soon. Additionally, Russian government has been doing experiments to launch its digital currency, Cryptoruble. Russians are doing homework and experiments since 2019 with the aim to introduce Cryptoruble in 2021.

Interestingly, Russia has allowed trading of all major cryptocurrencies except Bitcoin in the country from Jan 2021. This strategic decision of Russia is to promote its own upcoming digital currencies and keep Bitcoin away from the country that is mopping up investment from all over the world rapidly.

In the next couple of years there will be a tough competition in trading of digital currencies. Hence, the countries that will offer their digital currencies through their central banks will be able to attract massive investment that will promote their economic activities robustly. It is because, at present, no one owns Bitcoin and other major currencies and if someone faces a fraud in transaction of his/her digital currency or loses online account information, no one takes responsibility to solve this problem. Thus, investment in Bitcoin and other existing digital currencies is a highly risky business.

Top-20 Cryptocurrencies

At present, the top-20 cryptocurrencies are Bitcoin, Ethereum, XRP, Binance Coin, Tether, Cardano, Uniswap Protocol Token, Dogecoin, Polkadot, Stellar, Solana, Litecoin, Bitcoin Cash, Rally, VeChain, Terra, USD Coin, TRON, PancakeSwap, and Theta. These top-20 digital currencies have been calculated based on their market capitalization. Bitcoin is on top with a USD 58,150 price and USD 984 billion market capitalization as of 3 May 2021.

Market capitalization of this digital currency has crossed USD 1 trillion for the third time amid fluctuations in price of this cryptocurrency. An easy way to understand the size of market capitalization of Bitcoin is to look at the total annual GDP (Gross Domestic Product) of Pakistan which is around USD 325 billion. Thus, Bitcoin’s market capitalization is three times the GDP of Pakistan.

At this time, the total market capitalization of leading cryptocurrencies is around USD 2 trillion and half of the digital currencies market capitalization belongs to rapidly expanding Bitcoin. Financial analysts believe that in 2021, Bitcoin price has a potential to hit the USD 100,000 mark. In recent weeks this digital currency has crossed USD 60,000 per unit value twice.

In the third week of April 2021, Bitcoin fell from USD 63,000 to USD 47,000 when the US President Biden said the government would charge 39.6percent capital gain tax from those Bitcoin investors who will earn one million dollars or more profit a year from this currency. At present the capital gain tax in the United States is 20 percent.

This unexpected statement of the US President created panic in the trading of digital currencies, but within three days Bitcoin bounced back and crossed USD 58,000 because of fresh investment by 3 May 2021. In February 2021, Bitcoin was trading around USD 35,000, but its price spiked above USD 50,000 in a few days after Tesla CEO Elon Musk stunned the world by announcing that his company has invested USD 1.5 billion in Bitcoin.

A few weeks later, Tesla also announced that Bitcoin holders can buy this company’s cars by paying this digital currency, a new development that further boosted the Bitcoin spike and influenced many mega companies to make investment in this digital currency.

After Bitcoin, Ethereum is the second largest digital currency with USD 2,706 price per unit and USD 380 billion market capitalization followed by XRP having only USD 1.35 value per unit but its market capitalization has increased to USD 158 billion by May 3, 2021. Cryptocurrency analysts believe that Ethereum has a strong potential to grow like Bitcoin in next four to five years.

Meanwhile, Binance Coin is the 4th largest cryptocurrency with USD 576 price and USD 114 billion market capitalization. All other digital currencies have less than USD 53 billion dollar market capitalization each at present but with the passage of time their overall circulation and value is growing.

According to financial experts, COVID-19 driven global economic erosion has led to a phenomenal growth in demand and value of cryptocurrencies and this mania of buying digital currencies will continue as long as coronavirus haunts the world and further undermines the global economy.