Cryptocurrencies: Market bubble or new economic phenomenon?

Christos Lemonidis is one of EXANTE’s Senior Account Managers. Recently, he was interviewed by Greek news site Zougla to discuss the merits and drawbacks of the Cryptocurrency phenomenon. 

With over 3.5 million monthly subscribers, Zougla is one of the country’s forerunning online publications. The following article is a translated excerpt from Lemonidis’s interview.
 
Where to begin with cryptocurrency? An undoubted phenomenon in the world of finance, these new-fangled assets have created thousands of young millionaires in recent years. Bitcoin, the world’s first and most illustrious crypto, barely exceeded a few tens of cents at the beginning of the last decade. Today, 1 BTC exceeds $35,000. 

The explosive demand for BTC resulted in price surges, and by extension, huge profits. The success of BTC gave rise to a string of altcoins, with many now constituting an important and measurable factor in international economies. Nowadays, these assets not only function as investment capital, but also as an official means of trading. Various companies and organisations have subsequently opened their doors to crypto, including Visa and Paypal. 

Appraising the contemporary surge in alternative finance, Christos Lemonidis offers a uniquely academic interpretation of the cryptocurrency boom. Senior Account Manager for the multinational investment firm EXANTE, Lemonidis holds an MBA in Global Finance from the University of Derby. In this telling and informative take on a momentous watershed moment, Christos sat down with Zougla to discuss all things blockchain.

Since we are talking about an intangible asset, how is the price of crypto shaped? After all, this is a security that does not correspond to a commercial value or turnover of a company. What are the factors that shape the supply and demand? 

The initial purpose of cryptocurrencies was to be direct in transactions, minimising interference. It is a tool that everyone can easily obtain. Therein lies the appeal, I think. They were created to fill the gap of unreliability in the financial system. Many believe that crypto is nothing more than a prolonged ‘bubble’ that will invariably burst, losing the approximately 1 trillion dollars of value it's steadily accrued over the years. On the contrary, there are those who believe we are already living in the future, and that despite its complexities, crypto is here to stay. 

You’re a graduate of the University of Piraeus, and an alumnus of the Department of Finance & Banking Administration. Having prepared your dissertation on the esoteric nature of cryptocurrencies, are there any definitive answers or reliable predictions when it comes to these kinds of assets?
 
As economists, we cannot assign a 'fair' price to Bitcoin. Whereas stocks correspond to a company's performance and turnover, the same metric is effectively redundant here. We cannot make fundamental analyses, nor estimates. The only rule dictating crypto is supply and demand. And the reasons why one can buy or sell cryptocurrency are endless - as many as the opinions concerning a football match, watched by 50 people in a crowded cafe. That's precisely why no one can conclusively say if these securities exist in a vacuum/bubble, or if the prices will continue to appreciate over time.
 
Last year, we observed huge interest in the crypto market, even in our country. But what exactly is this market, and how does it work?

Cryptocurrencies are an evolution in the concept of money, especially as pertaining to its use as a means of trade. We live in a time of rapid, fast-evolving changes, and the financial credit system is undoubtedly influenced by that technological evolution. From time to time, we observed that money has changed many forms. Even today, we can see that banknotes are being replaced by plastic money, payment platforms and the increasing digitisation of services. A combination of technological change and dematerialisation has come to define the age we currently live in. We can say that Cryptocurrencies are the inevitable endpoint of this revolution.
 
Unlike the more traditional forms of finance that governments produce worldwide, the tactility of crypto is essentially nonexistent. So what’s actually happening here? Is it a wholly private entity?

From their initial conception, cryptocurrency creators had the idea to incorporate some specific standards into their construction. A major criterion was to ensure privacy in transactions. If someone wants to make a transaction using the banking system, this trade is perceived by his banker, and by extension, the central bank of his country. Put simply, he has to pay a commission to the banking sector in order to execute his trade. Crypto is a subversion of this principle: it ensures absolute privacy in its directness, circumventing any and all interference from the banking system.
 
So can anyone buy crypto?

Yes. It’s a really simple procedure. You simply open an account with an online wallet or crypto exchange. Some brokerage firms also provide the assets, though they’re usually derivatives. Then the investor makes a deposit to his account, in much the same way he would buy a stock or any other financial Instrument.
 
What about the capitalisation of these instruments? Is it happening in a trustworthy way?

All Crypto is valued in relation to a country’s national currency. Usually, they’re measured against the US Dollar. For example, 1 BTC is currently worth around $38,000 (as of late May 2021). As I mentioned before, this price is determined by the forces governing supply and demand. There’s an irony in the similarity one can draw between something intangible like crypto, and something physical, like tomatoes! Funnily enough, both operate under the same principle. 

To read the full, original Greek interview, follow the link!