Coin Wars: Rise of the blockchain

The field of cryptocurrencies is ever expanding. As of January 2021, there are more than 4,000 cryptocurrencies in existence1. Crypto is trendy, innovative and the market is expected to grow from $1.6 billion in 2021 to $2.2 billion by 202632. 

Those interested in the field are constantly speculating and predicting the value of a wide range of popular coins like BitCoin, Etherum, Polkadot, Cordano and how can we forget Dogecoin? Donald Trump thinks ‘BitCoin a scam’,3 Tyler Winklewoss believes it’s ‘a mathematical framework that is free of politics and human error’,4 and Elon Musk wants to ‘send Doge coin to the moon’. Literally5. 

One thing that is clear is that crypto-mania is not going away anytime soon. For every Michael Burry type quote slamming Crypto as a speculative bubble,6 there is a Steven Cohen quote stating that ‘he’s all in on crypto’7. 

But what about trade? 

Beyond the hype and volatility there are actual payments being made in virtual currency. In 2018, for example, Russia and Iran agreed to use cryptocurrencies for their trade interrelations as they offer a solution for countries that wish to circumvent US sanctions8. And the innovation in China in this field eclipses the development of all other countries in this area, having already started rolling out their digital Yuan and having begun building a Blockchain Service Network (BSN) that could act as a framework for all other Central Bank Digital Currencies (CBDCs). 

There is a real opportunity here too for speeding up SME trade finance. There are already payments providers such as Coinbase that are currently providing mostly to B2C markets. However, as digitisation gathers speed within the trade finance space, and as digital documentation and blockchain solutions are used with greater frequency, there is surely a role for digital currencies that allow cross border payments to be made against electronic instruments, such as eBills of Lading or eBills of Exchange?

This is one to watch but meanwhile, we are seeing a huge increase in the hardware that drives crypto: 

This impact of cryptocurrency on the trading world is already significant and paving the way for China to take a huge leap forward in terms of economic power and control. Data from our MultiLateral software (Figure one) shows the global imports and exports of data processing machines. Since 2006 China has been the biggest exporter of these goods and the US the biggest importer of these goods. As the cryptocurrency industry grows and relies even more on these machines, the dependency on China as a producer could increase exponentially thus leaving all other countries in the dust. 

 

This impact of cryptocurrency on the trading world is already significant and paving the way for China to take a huge leap forward in terms of economic power and control. 

Figure one: Exports of data processing machines 

This matched with their BSN development could give them a huge advantage to host and manage a global cryptocurrency framework that they both own in terms of hardware, but also provide the materials and resources from which all necessary hardware is built. An achievement potentially allowing a monopoly on the whole crypto space. 

Obviously, this is not an ideal scenario for the US, so expect the Biden administration to look at the notion of CBDCs more closely and seek to counter China’s movements.

One thing for certain is that China is pushing ahead in the field of digital currencies and if the sector does grow from $1.6 billion in 2021 to $2.2 billion by 2026 as predicted, the impact on trade will be cataclysmic. Could we expect crypto-wars post trade-wars?

One thing for certain is that China is pushing ahead in the field of digital currencies and if the sector does grow from $1.6 billion in 2021 to $2.2 billion by 2026 as predicted, the impact on trade will be cataclysmic. Could we expect crypto-wars post trade-wars?

1 https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/ 

2 https://www.researchandmarkets.com/reports/5316695/global-cryptocurrency-market-with-impact-of-covid?utm_source=CI&utm_medium=PressRelease&utm_code=5c3z26&utm_campaign=1532705+-+Global+Cryptocurrency+Markets+2021- 2026%3a+Transparency+of+Distributed+Ledger+Technology%2c+High+Inflow+of+Remittances+to+Developing+Countries+%26+High+Charges+of+Cross-Border+Remittances&utm_exec=chdo54prd 

3 https://www.bbc.co.uk/news/business-57392734 

4 https://www.cnbc.com/id/100635418 

5 https://twitter.com/elonmusk/status/1391523807148527620?lang=en 

6 https://markets.businessinsider.com/currencies/news/big-short-michael-burry-says-bitcoin-speculative-bubble-crash-coming-2021-3-1030134627 

7 https://www.benzinga.com/markets/cryptocurrency/21/06/21628788/hedge-fund-billionaire-steven-cohen-says-hes-fully-converted-to-crypto-u-today-report 

8 https://credendo.com/en/knowledge-hub/will-digital-currencies-offer-new-method-payment-international-trade