Friday, June 9, 2023
HomeCryptocurrency NewsACRA: Cryptocurrency can not yet fulfill the functions of world money

ACRA: Cryptocurrency can not yet fulfill the functions of world money


Analytical Credit Rating Agency (ACRA) has prepared a report on the cryptocurrency market.

According to analysts of the agency, the cryptocurrency is not yet fully fulfilling any of the functions of money. The volatility of the price of the cryptocurrency is high and comparable with the dynamics of prices for food products (the most volatile of raw materials), which does not allow using cryptocurrency as a means of payment.

Thus, experts note that already today the cryptocurrency could serve trade operations for individual goods, but because of high volatility indicators of its rate and purchasing power (the index of annual volatility of 1 bitcoin is 92%, and ethereum, that of the second most popular after bitcoin – 121 %) cryptocurrency cannot fully perform such functions of money as a measure of value and means of circulation of goods.

Comparable with the cryptocurrency volatility is, for example, trades on the exchange of food products. According to the United Nations Industrial and Agricultural Organization, in 2017, the annual volatility index of dollar prices for dairy products was 202%, for sugar – 227%, and for meat – about 170% (for comparison, the volatility of the dollar price of crude oil in 2017 was at the level of 28%).

To date, the cryptocurrency does not fully perform any of the functions of convertible currencies. To implement such a functional, it must be able to maintain its value in time, or have a security in the form of a real asset that can be monetized in the future without loss of value (tokens in some ICOs are tied to real goods or services that generate value) , or have a guarantee of their relevance and value in the future (for example, recognized by states as a means of payment for taxes).

Comparing the cryptocurrency with the fiat state money and commodity money (having its own intrinsic value), ACRA notes that the main difference between the cryptocurrency is that its current market value is formed mainly on the expectations of investors’ readiness to sell it in the future at a higher price.

Given the uncertainty of the formal status of the cryptocurrency and the absence of state guarantees (regarding its stability, as well as use as a means of payment), its performance as a means of accumulation largely depends on the expectations of current investors.

The weight of the crypto currency in the world payment system and in servicing the world trade turnover is now insignificant. Cryptocurrency is often used as an investment asset, rather than a means of calculation. And from the point of view of the global financial system, the volume of the cryptocurrency is not sufficient to fulfill the function of world money.

At the same time, the distribution of cryptocurrencies does not yet reduce transaction costs in the economy. Energy inefficiency, lack of economies of scale in cybersecurity issues (the total cost of holders of wallets may be higher than the costs of banks), low speed of entry into the register – all these factors reduce the value of the potential advantage, which is the reduction in the number of intermediaries in settlements (banks).

Get The Latest Cryptocurrency News First - Join Us In Telegram

Recent Posts

Most Popular