Speculative bubble or finance revolution? The debate between cryptocurrency supporters and naysayers has just gotten started. Paolo Buzzi, Swissquote Bank’s CTO, thinks virtual currencies are here for the long haul. Here is a closer look.
According to a recent survey conducted in Great Britain, two-thirds of millennials plan on investing in cryptocurrencies in 2018. Did you ever imagine this kind of tidal wave?
When we started work on this project in 2016, we realised that there was major interest simply by listening to people. But it is true that the general passion for it far surpassed our expectations. It remains to be seen whether this trend will last long-term. Given that the market for cryptocurrencies is very volatile, with high highs and low lows, some people panic and quickly liquidate their positions. Others, on the contrary, love it and see it as a chance to do a little shopping...
When it comes to cryptocurrency, we read and hear all manner of things. Some economists speak highly of their potential and their advantages, while others say it’s a bubble. What do you think?
I think that cryptocurrencies are here to stay. What is happening is rather incredible. We can look at what’s been happening as a form of rebellion against the establishment, owing to the fact that cryptocurrencies cannot be manipulated by a centralised authority. Rules created with bitcoin are intended to be public and transparent. These rules are written in the algorithm and cannot be modified. Here, the central banks, who usually issue money, are replaced by the algorithm itself. It’s a really interesting concept.
Actually, do you think that traditional frames of reference are still valid when it comes to cryptocurrencies? Or, to put it another way: do economists really know what they’re talking about?
For people who learned and applied economics during the previous century, they had to understand how bitcoin worked when it came on the scene... And this isn’t an easy thing, as the technology behind cryptocurrencies is relatively hard to learn. This is the first roadblock. In addition, given that the fortunes of bitcoin are not linked to the real economy, but solely to the law of supply and demand, the rules of logical thought based on economic fundamentals don’t apply. For this reason, lots of people – whether rightly or wrongly – do not recommend investing in cryptocurrencies. As it stands, it must be said that people who invested in bitcoin a year ago, when its value was $400, can be satisfied with their investment today. And that’s leaving aside the early adopter geeks who bought bitcoin five years ago...
Do Swissquote clients invest more for speculation or to keep their cryptocurrencies long-term?
We still don’t have enough perspective, but it seems that lots of people are choosing to hold on to their positions. These investors consider bitcoin to be a new class of assets that is decorrelated from the markets. Certainly, there are also clients who are interested in short-term gains more than anything. They’re having a grand old time, as cryptocurrencies lend themselves well to technical analysis. Moreover, these assets are traded 24/7.
Personally, would you invest in cryptocurrencies?
Yes, in all the kinds available on our site, with a preference for bitcoin and ethereum.
What is your opinion when it comes to ripple, which has been marketed as the “currency of banks” and which has caused quite a stir?
The ripple network (RippleNet) allows very quick interbank transactions, and for this reason, we’re interested in following its development. As for the currency itself, its proprietary non-open-source format disturbs me, but that’s a purely personal opinion. This cryptocurrency seems less transparent to me than the others, but it has garnered quite a following.
Of the cryptocurrencies offered by Swissquote (bitcoin, bitcoin cash, ethereum, litecoin, ripple), which are the most promising?
It remains to be seen which of the currencies will dominate. That’s the big question. Currently, bitcoin still has many advantages: it’s a wellestablished currency, one that has been well audited since 2009 and which is secure. We can’t say the same for the countless other cryptocurrencies that pop up nearly every day. The main disadvantages of bitcoin remain the limited supply and length of transaction time. Other currencies, including ethereum, are far quicker.
Do you plan to offer new cryptocurrencies soon?
We want to expand our offerings to up to about 10 cryptocurrencies. It will depend on two factors: what our clients ask for and what will be possible from a legal point of view. In principle, FINMA (ed. note: the Swiss federal authority responsible for monitoring the financial markets) plans to classify all cryptocurrencies on the same level as bitcoin.
Currently, Swissquote clients invest and withdraw their profits in euros or dollars. Will “wallets” for storing cryptocurrencies be available in the future?
We do not currently allow to send or receive bitcoins because of the risk of money laundering. To offer such a service, the origin of cryptocurrencies must be traced. Tools exist for this and it is probable that we will offer such a service soon (provided FINMA authorises it). However, for the moment, our clients aren’t asking for it. They use cryptocurrencies for investment.
Will the possibility of regulations or future bans threaten the launch of cryptocurrencies?
There are, in fact, a lot of unknowns when it comes to regulations. It remains difficult to measure their impact. But I think regulators will find it difficult to directly oppose the cryptocurrency movement. Many people will see it as an attack on their freedom. What we’re observing is that approaches will vary noticeably depending on the country. Japan has shown itself to be the most liberal, recognising cryptocurrencies as legal tender for payments, and even creating its own cryptocurrency. At the other extreme, China has more or less announced its intention to leave cryptocurrency in an orderly fashion and then return when rules have been put in place. As for France, it is pushing for a debate on cryptos during the next G20 summit.
If the global economy crashed, could cryptocurrencies become a safe investment?
Anything is possible. Bitcoin could very well play such a role. This ultra-risky asset could turn into a safe investment. We have witnessed it recently in Zimbabwe, where locals trying to protect themselves against hyperinflation and finding it difficult to obtain US dollars have turned to bitcoin.