In the past few weeks, the prices of cryptocurrencies, especially Bitcoin, have been inconsistent. The price rose from just under USD 30,000 at the beginning of the year, fuelled by tweets by entrepreneur Elon Musk, among other things, to its previous high of almost USD 65,000 in mid-April, before falling just as quickly to below USD 30,000 in June falling behind. Bitqh is a website that provides thorough information on bitcoin trading.
Governments and central banks are critical to developing non-government cryptocurrencies, while commercial banks are beginning to expand their cryptocurrency-related services. Therefore, the European Central Bank (ECB) is working on plans for its digital currency, the electronic euro (e-euro). What are the main differences between the concepts? And: Which means of payment will savers and investors rely on in the future?
Value as a medium of exchange
Currencies such as the euro are means of payment that state institutions or central banks are tasked with safeguarding their value. It is different from cryptocurrencies. And that market participants attribute to it. Supply and demand determine prices.
That means: External factors can influence the valuation of crypto assets. Blockchain computing power and high energy consumption are examples on the supply side. Increasing marginal costs make bitcoin more expensive. It would be comparable to the ever-increasing expense of gold mining in mines or oil exploration. Therefore, inflation protection is often mentioned.
On the demand side, it is evident that the price is also driven by speculation (and not just by using cryptocurrency as a means of payment). It is the only way to explain the extreme price fluctuations and the significant influence of the Tesla boss’s messages via the short message service Twitter.
The counter-model: the e-euro
In contrast, the ECB plans an option with the e-euro, a means of payment. The digital euro would thus be a direct claim against the central bank and identical in value to the “analogue” euro. It cannot, therefore, offer protection against inflation.
Just as the central banks see their money monopoly threatened by private cryptocurrencies, the commercial banks fear that the question of issuing the new e-euro will make them lose their heads. In theory, the central bank could issue and accept the e-euro directly to users without intermediaries. However, the ECB does not want to go that far: market observers assume that the ECB board of directors around Christine Lagarde will pursue an indirect model. So instead, the commercial banks manage the e-euro and issue it with an upper limit per user. With this integrative solution, the ECB would avoid another conflict with an already under pressure industry.
Outlook: Security and trust will be decisive
The question of using these currencies will boil down to the criteria of security and trust. Anyone with essential trust in the ECB as an institution will also rely on the e-euro. Consequently, the ECB would then have to issue the e-euro directly.
However, if the e-euro differs only slightly from the available digital payment methods, there is hardly any reason for consumers to switch. The initiatives of the ECB and other central banks to introduce digital central bank money (CBDC) are, therefore, certainly an attempt to sustainably invalidate the arguments for non-state cryptocurrencies for the digital economy and usage-based payment models.
The European Central Bank intends to present its decision on the e-euro before the summer break. Different interests collide. All market participants would be affected by a change in the monetary system.
After the outbreak of the corona pandemic pushed the stock exchanges deep into the red in spring 2020 and investors secured their money from uncertainty about the new virus, the prices of shares and the like recovered quickly and rose sharply – even if Omicron probably experienced a year-end rally torpedoed.
Many new investors saw the 2020 corona crash as a cheap entry point into the financial marketsmore Germans than they have flocked to the stock exchange in two decades. Share prices have again increased significantly since the beginning of the year. The book profits of investors are likely to be considerable at times. Anyone who got on board in January and didn’t let the uncertainties surrounding delivery bottlenecks and new corona worries unsettle them was able to generate a decent return.