The Spectacular Burst of the Cryptocurrency Bubble

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Cryptocurrencies have become well-known worldwide. Nearly every day new ones emerge, old ones die, early adopters get wealthy and baffled investors lose money.

There are tons of articles online explaining what cryptocurrencies are. In simple words, a cryptocurrency differs from regular currencies like dollars, euros, etc., because it is virtual: so it comes in virtual tokens – not actual paper notes or coins. It is decentralized, which means it is not regulated by a financial authority (like a central bank). And its value is based on consensus instead of commodities (like gold for most currencies).

Apart from these differences, cryptocurrencies work just like regular ones. Adopters can use them as a means of payment and exchange.

They are called cryptocurrencies because the process of generating and transferring them is secured by strong cryptography (security codes).


A growing market

Today, millions of merchants and tens of thousands of websites around the world accept cryptocurrencies as payment. The number of cryptocurrencies available over the internet as of August 2018 is over 1,600 and growing.

Bitcoin is one of the most traded cryptocurrencies. In the first quarter of 2019, there were 17.6 million Bitcoins in circulation with a single Bitcoin worth around 5,271 USD at the time I write this article. The Bitcoin had hit a record high of 11,879 USD on the evening of December 3, 2017. Almost 32 million Bitcoin “wallets” (secure ways to send and receive Bitcoins) had been set up globally by December 2018.


Are cryptocurrencies acceptable worldwide?

The short answer is “no.”

Cryptocurrency acceptance varies from one country to another.

For instance, the UAE has mixed feelings about cryptocurrencies, which it considers unofficial and still not covered by regulation. It hasn’t issued licenses to cryptocurrency startups or companies to operate in the local market. However, the UAE has announced it is working on its own cryptocurrency, and is even working with Saudi Arabia to jointly develop a cryptocurrency for cross-border payments.

European Union states, the UK, and other states agree over the need for stricter rules to prevent money laundering and terrorism financing on exchange platforms for cryptocurrencies. The agreement is part of a broader set of measures to tackle financial crimes and tax evasion.


The pros and cons of cryptocurrencies

Most cryptocurrencies are built from the bottom up with security and privacy in mind. However, secure and private transactions can potentially make it easier for people to skirt the law.

Cryptocurrencies have low transaction costs compared to cash or other digital payment methods like PayPal but they are only accepted by certain vendors. Combined with fluctuating prices, money saved on transaction costs could end up being negligible.

Since the cryptocurrency market is volatile, it can potentially be a high reward investment. But keep in mind that this volatility means the value of cryptocurrency coins can vary widely in a short amount of time. In 2014, for example, the value of Bitcoin ranged between about $30 and $1,000!

With the growth of cryptocurrencies over the last three years, money crimes have become a huge problem, surging by more than 400% in 2018, with investor losses totaling about $1.7 billion.

When you think about it, there are many reasons why using cryptocurrencies to fund criminal or illegal activities can be attractive.

Because they are traded on the Internet anonymously and do not involve face-to-face exchanges, they allow anonymous funding (funding that does not properly identify the funding source). Also, cryptocurrencies lack central oversight since they are not regulated by any central bank or government. These two factors can have extremely detrimental and devastating effects.


Where does Lebanon stand?

The Central Bank’s Basic Circular no. 69, dated 30 March 2000, states that undertaking banking operations through electronic mobile devices shall be restricted to operations between a specific bank and its customers. The issuance and use of electronic money is strictly forbidden.

Last year, the Capital Markets Authority (CMA) issued Notification No 30 on electronic money risks, prohibiting licensed institutions and the public from issuing electronic money as well as marketing and trading in cryptocurrencies for their accounts or the account of their customers directly or indirectly including those negotiable in the regulated financial markets.

However, in January 2019, Central Bank Governor Riad Salameh announced the launch of a new 100% Lebanese cryptocurrency in the near future. The currency will be a “virtual Lebanese pound” destined exclusively for local use. It is intended to facilitate payments, help implement a technological transformation of financial institutions, and reduce costs borne by consumers.

One thing is sure, the cryptocurrency market started maturing only since the mid 2010's when Bitcoin started gaining traction. So we definitely haven’t heard the last of cryptocurrencies.

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