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Many Bitcoin believers may disagree, but most experts agree that the run-up in its prices is a bubble. The question for them is when, and not if, its price will crash. As a result of that question, what will be the effect of such a crash?
The Financial Stability Oversight Commission recently came out with a report listing challenges to financial stability, and digital currencies merited a very brief mention. According to the agency, virtual currencies have a "minimal." impact on financial stability. This is likely because the current bitcoin ecosystem is relatively small. Bitcoin believers may disagree, but most experts agree that the run-up in its prices is a bubble. The question for them is when, and not if, its price will crash. As a result of that question, what will be the effect of such a crash?
The Financial Stability Oversight Commission recently came out with a report listing challenges to financial stability, and digital currencies merited a very brief mention. According to the agency, virtual currencies have a "minimal" impact on financial stability. This is likely because the current bitcoin ecosystem is relatively small. Subprime mortgages were the last financial severe instrument to destabilize the U.S. Economy. That crisis occurred due to the confluence of a complex cocktail of factors. Actors from the mainstream economy were active participants in the process. For example, subprime creditors across the United States took out faulty loans. Big multinational banks repackaged these loans into derivative instruments. They sold them to investors, who propagated these sales through different parts of the economy. Collateralized debt obligations further spread the leverage contagion across the world.
Citigroup Inc. (C) had originated an estimated $19.7 billion in subprime mortgages at the height of the crisis. Bear Stearns, an investment bank that collapsed in the aftermath of the problem, had a "vast portfolio." of derivative instruments related to subprime mortgages. In contrast, bitcoin is yet to overcome its renegade status within the financial services ecosystem. The increase in its prices has occurred within the confines of unregulated exchanges yet to pass scrutiny by regulatory agencies. Based on recent reports, the leading players in these exchanges are individual investors and bots. Big banks and investment firms have primarily stayed away from the bitcoin craze. Their exposure to cryptocurrency markets, if any, is limited. While it is true that bitcoin-related stocks have risen in valuation, their numbers are low.
A measure of the finance industry's caution is the relatively subdued response to CBOE futures trading even though bitcoin's price has jumped by more than 1,800 percent over this year. Even as a clearing agent for CBOE bitcoin futures, Goldman Sachs reportedly demands a 100% margin for bitcoin trades.
Instead of the subprime mortgage crisis, the bitcoin bubble's outcome may be similar to that of the "tulip mania" in Amsterdam during the early 17th century. Prices for tulips, imported from Turkey, surged during that bubble as "cobblers, carpenters, bricklayers, and woodcutters." participated in it. But the collapse in tulip prices had a limited effect on the overall Dutch economy because serious financiers stayed away. According to Dutch historian Nicolaas Posthumus, only casual traders were bidding up fees for tulips for greed and profits. In the end, it was these people who were affected when prices collapsed. Similarly, a crash in bitcoin prices will trigger a sell-off and affect a minimal number of people.
Online publication Axios has come up with an estimated $250 billion as the monetary impact of a bitcoin crash. But that estimate betrays an incorrect understanding of the utility and markets to cryptocurrencies. There is already substantial investment in blockchain, the underlying technology of bitcoin. Besides this, bitcoin's price movements suggest that it is emerging as a store of value. Cryptocurrencies are also helpful as a means of exchanging value within closed ecosystems.
That said, it will be some time before their utility is realized within mainstream applications. The current rise in prices for most cryptocurrencies is primarily due to a domino effect from bitcoin's surge. A bitcoin price crash will likely result in a correction in their prices as well. It is also confident that the vast majority of cryptocurrencies that populate the current listings will disappear. Only digital currencies that have defined business models and straightforward utility within mainstream society will survive a crash.
What Does This Mean for Gold?
As many investors in the crypto world love the freedom that crypto gives, Precious metals offer the same, only more and their tangible, private, you can hide and store them, You don't have to have a password hidden beneath the earth's surface with a compass to find it, the web doesn't dictate if you're able to use it or not, and I am not responsible for reporting when you buy or sell metals from us. I believe inflation is about to turn our world upside down. Although there have been some easy ways to make money in the market with all this stimulus money, all good things must come to an end. As we know, it is coming to an end. The end of the dollar and the Great Reset is upon us rather we like it or not. Unfortunately, most Americans are not ready as they've been blinded by mainstream news or Social Media. Don't be the sniper who has to take the shot yet forgot to sight his scope in. Give us a call or shop online at=GoldPro.com or 855-423-4653 and put a portion of your portfolio into metals while you still can!