Perspectives on cryptocurrency

By Ebenezer M. ASHLEY (PhD.)

Many economists and experts in the art and science of finance believe investments hold the key to individual, institutional and national development. To this end, the concept deserves utmost attention in discourse pertaining to rational investment decisions. Generally, investment may be private investment or public investment. Either of the foregoing may be induced or autonomous investment. Induced investments are also called income-elastic investments, meaning they are investments that change when there is a change in individual, corporate or national income. Induced investments are pronounced in capitalist-driven economies where profits dominate the motive for investments. Autonomous investments, as the name implies, are independent by nature; they do not vary necessarily with changes in income or output. Profit motives do not dominate or influence such investment decisions. Thus, autonomous investments could be described as income-inelastic investments since they do not respond to variations in output; and are expected to pay for themselves over time. For instance, irrespective of national income or profit levels, economies were compelled to construct medical facilities, purchase personal protective equipment (PPE), and other medical logistics to contain and prevent further spread of the COVID-19 pandemic. This is classic illustration of autonomous investment.

The Psychological Law of Consumption propounded by the famous British Economist, John Maynard Keynes (5th June, 1883 to 21st April, 1946) (Britannica, 2020b) states inter alia, consumption increases as income increases. However, the increase in consumption occurs at a less proportionate rate comparative to increase in income. This implies a fraction of the income earned is not spent or consumed; it is saved.

A common belief held among some economists is discussions on investments often tend to focus on financial investment to the neglect of real investment. The latter relates to investments in the construction of new equipment, factory, buildings; and productive capital stock of communities such as roads, bridges, classroom blocks, and health facilities, to mention a few. Proponents argue real investments increase demand for physical resources and human capital, leading to increase in their respective employments in economies; and stimulation of real growth. Financial investments relate to the purchase of existing shares, stock, and securities including exchange traded funds (ETFs), virtual currencies, and bonds from the investment markets. Some economists argued financial investments do not create real employment opportunities since they involve mere exchange of funds or money from one person or organisation to another.

The dominant investment theories in macroeconomics include the neoclassical theory of investment, internal funds theory of investment, and accelerator theory of investment (Karmakar, n.d.). For the purpose of the current research, we focused on the accelerator theory of investment developed by John Maurice Clark, the renowned American Economist who lived from 30th November, 1884 to 27th June, 1963 (Britannica, 2020a). Popularity of the accelerator theory of investment in discussions related to the theories of economic growth and trade cycles cannot be over-emphasised.


The accelerator theory of investment was developed based on the following assumptions. First, investment has both induced and autonomous components; second, absolute levels of output or demand do not determine investment. Rather, investment is stimulated by rate of increase in total demand or net national product. Thus, investment declines as the rate of increase in income falls; investment increases as aggregate demand increases; and investment remains constant as rate of income is stable. Finally, investment is extremely volatile compared with other components of aggregate demand. That is, any percentage change in aggregate demand is likely to result in large percentage changes in investment in productive capacity (Nipun, n.d.).


The accelerator theory of investment was developed on the fundamental premise that production of a given output level requires a particular amount of capital stock. That is, the theory identifies fixed relationship between output and capital stock. For instance, in order to produce GH¢200 million worth of output, a capital stock of GH¢600 million would be required. The foregoing could be expressed mathematically as follows:

X = Kt ÷ Yt……………………..I


X = Ratio of capital-output

Kt = Capital stock of the economy in period t

Yt =Total output in period t

The relationship between output and capital stock could also be expressed as follows:

Kt = XYt…………………………II

Equation 2 tells us capital stock of the economy (Kt) equals the ratio of capital-output (X) multiplied by total output in period t (Yt). Suppose X is constant. The following equation could be derived:

Kt-1 = XYt-1………………………III

Subtraction of equation 3 from equation 2 would lead to derivation of the following equation:

Kt_Kt-1 = XYtxYt-1= X(Yt–Yt-1)………………………IV

The accelerator theory of investment assumes net investments equal the difference between capital stock in period t and capital stock in period t-1. Therefore, net investments equal the product of the accelerator coefficient and change in output from period t-1 to period t. Under the accelerator theory, net investment (NI) is assumed to equal gross investment (GI) less depreciation (D) or capital consumption allowances (CCA). That is,

NIt = GIt – Dt or CCAt………………………………….V; and

NIt – Dt = X(Yt – Yt-1) = XΔY………………….VI

In equation 6, net investment during period t (NIt – Dt) equals X, which is the accelerator coefficient multiplied by change in output (ΔY). Investment is a function of output since X is assumed to be constant; and increase in output means net investment is positive. Rapid increase in output is analogous with increase in net investment. Recall in our earlier example GH¢600 million worth of capital stock would be required to produce GH¢200 million worth of output. This implies X = GH¢600 million ÷ GH¢200 million = 3. Thus, X which represents the ratio of capital-stock and output of the economy equals 3.

The theory suggests output would be worth GH¢200 million as long as aggregate demand remains GH¢200 million and capital stock is GH¢600 million. Further, net investment would be zero if aggregate demand is GH¢200 million because firms are not incentivised to increase their respective productive capacities. However, firms may be compelled to replace worn-out and deteriorating plant and equipment (P&E). As a result, gross investment would be positive.

Since the ratio (X) between output and capital is assumed to be fixed, an increase in aggregate demand from GH¢200 million to GH¢210 million implies an increase in capital stock of the economy from GH¢600 million to GH¢630 million, if output is also expected to increase to GH¢210 million (from GH¢200 million). This means for production to increase to the level of GH¢210 million, net investment (new investment in productive capacity) must equal GH¢30 million; the latter is the amount necessary to increase the economy’s capital stock level to GH¢630 million. To illustrate, since X equals 3 and change in output equals GH¢10 million, net investment (GH¢30 million) equals the accelerator coefficient (X) multiplied by change in output. That is, GH¢30 million = 3 x GH¢10 million. Suppose the increase in output was greater. Net investment would have been larger, implying a positive relationship between the two variables – output and net investment.


The foregoing provides succinct explanation for the classical version of the accelerator theory of investment. Like many other theories, the accelerator theory of investment has been a subject for critique and criticisms by some experts in the field of economics and finance. For instance, a careful review revealed the theory provides explanation for net investment to the neglect of gross investment. However, the need to provide explanations for and determine aggregate demand affirms the relevance of gross investment to the theory.

Further, the theory assumes the elimination of discrepancy between actual and desired capital stocks within a single period. However, elimination of discrepancy in a single period may be practically impossible, if industries engaged in the production of capital goods are already operating at full capacity. Besides, gradual elimination of the discrepancy may be appropriate and economical even if the implied industries are operating at less than full capacity.

In addition, the accelerator theory of investment assumes firms and industries do not operate at excess capacity. That is, no productive equipment is allowed to lie idle; all productive equipment and facilities are employed in the manufacturing process. The theory posits net investment is positive when output increases, meaning the existence of excess capacity would lead to little or no net investment; firms are motivated to consider net investment when increase in productive capacity is assured. As a result, the theory may not be valid or applicable in periods of recession since periods of recession are characterised by excess capacity.

Also, the theory assumes a fixed ratio between output and capital stock. Although this assumption is occasionally justified, its continuous justification becomes problematic when companies substitute labour for capital, at least within a short time period. Companies are sometimes obliged to consider other pertinent factors, including interest rate in their attempt to optimise productive capacity; and this negates the assumption of firms’ constant reliance on the fixed ratio between capital and output in making net investment decisions.

Moreover, suppose there is a fixed ratio between output and capital stock; companies do not have excess operating capacities; and there is an increase in aggregate demand. In this case, companies may be encouraged to make new investments in P&E in response to the increase in aggregate demand only if the new demand level would be sustained over a long- and not short period. Thus, temporary increases in aggregate demand may not be met with increased investment in plant and equipment. Rather, the implied company may consider stock-pile of production, price increases, allowance for extra work-shift hours by employees, and maintenance of current output levels as strategic ways of maximising profits other than increasing productive capacity and output through novel investment in plant and equipment.

Finally, the assumption of fixed ratio between output and capital stock; and the need for increase in net investment in response to an increase in aggregate demand suggests piecemeal expansion of productive capacity in response to aggregate demand increases in the short-run. However, this approach may not be economically viable to the implied company. This approach to the expansion of productive capacity in the short-run may not be possible, if the net investment is required in an industry that is highly driven by sophisticated and huge technological structures. In other words, the nature and type of industry influence a great deal, practical illustration of the assumption of fixed capital-output ratio, especially in the short-run. To this end, it is argued firms’ decision to increase their respective productive capacities may not have a short-run focus; they may be seeking to address long-run productive capacity needs. Thus, companies may be strongly interested in substituting long-run productive capacity for piecemeal expansion of productive capacity in response to increases in aggregate demand in the short-run.

Security in the Digital Currency Markets

A major threat to trade and investment stability in the virtual currency markets is the attacks on virtual exchange technologies. The United States Secretary of Homeland Security (as cited in Finlay & Payne, 2019) suggested the risks associated with physical attacks do not measure up to the possible consequences of cyber-attacks, in terms of scope and breadth of the latter. Accurate identification of cyber-attacks’ origin remains a strong challenge to technology and security experts. The high level of anonymity and limitless boundaries in the cyberspace facilitate masking of true identity and location by hackers.

Consequently, effectively identifying perpetrators of attacks in the cyberspace is extremely difficult. Hackers with strong technological sophistry could use different identity and location to create the impression that innocent third parties were responsible for the attacks. Finlay and Payne (2019) observed current provisions in international law do not allow any country to be held directly responsible for cyber-attacks by individuals, group or groups identified as non-state actors. That is, the activities of these individuals or groups are not controlled directly by the state; and the state neither acknowledges nor adopts their conducts as its own. Indeed, possible economic consequences of cyber-attacks on cryptocurrency markets and investors therein may be enormous as outlined in the problem statement section.

In spite of the numerous attacks on digital exchange markets and subsequent loss of investments worth hundreds of millions of dollars cumulatively, proponents of the digital currency system are still upbeat about current and future prospects of the cryptocurrency industry; and its ability to revolutionise the current global financial system, which they described as defunct or antiquated (Kirk, 2016). The foregoing argument raises doubt about the ability of recent cyber-attacks on Bitcoin networks; and platforms of other cryptocurrencies to derail the fundamental objective of digital currency developers and miners. That is, to emerge with virtual currencies that could defy geographic distance and limitation; and condense the global business environment into “single and small global village” in terms of faster processing time for global financial transactions.

These positives notwithstanding, Valkenburgh (as cited in Kirk, 2016) noted the frequent security breaches witnessed in the virtual exchange markets was an attestation to vulnerabilities inherent in cryptocurrency technology platforms; and each hack presented digital platform managers with an opportunity to learn and grow resilient, implying virtual platform managers must resist the temptation to draw hasty conclusions, following system-attacks. Proponents’ belief in potential of the digital currency markets to grow in leaps and bounds underscored the rebound in per-token value for bitcoin to US$580.00 after Bitfinex’s announcement on system-attacks resulted in 20% plunge in its price per token.

Cheah (2020) believed the world is inching close to an era of financial system that is more decentralised and liberal than before. However, this remarkable feat is predicated on effective checks-and-balances to assure spread of potential benefits while minimising possible risks. The author argued effective management of the new virtual system remains a challenge to the global financial community in the next few years.

Kirk (2016) revealed the possibility for system-hackers to steal bitcoins when they access the private encryption keys of traders in the digital currency markets. However, all bitcoin-related transactions are recorded in the public blockchain; and this makes it easier for movements of stolen bitcoins to be traced. The algorithm and related features of bitcoin do not allow for its easy conversion to fiat currency when stolen; it is not feasible for hackers to cash colossal amounts of stolen bitcoins at renowned virtual exchanges, especially when the stolen bitcoins’ address is closely-monitored. To ensure strict compliance with anti-money laundering regulations, managers of digital exchanges require identification of account holders.

Leins (2020) reported in July 2020, the Twitter accounts of some American stalwarts and celebrities were hacked-into by scammers. These iconic American figures included former President Barack Obama, and President-elect Joseph Biden. The rest were Messieurs Elon Musk (chief executive officer (CEO) of Tesla and Space X), Bill Gates (founder of Microsoft), Jeff Bezos (CEO of Amazon), Warren Buffett (CEO of Berkshire Hathaway), Michael Bloomberg (former Mayor of New York City, politician and businessman); Kim Kardashian and Kanye West (celebrities); and corporate accounts of Uber and Apple, among others. The primary objective of the hackers was to lure followers of these account holders to send US$1,000 in bitcoin with the false promise of remitting double the amount (US$2,000) to the senders. The hackers-cum scammers were able to net over US$50,000 from their innocent targets and victims.

However, Leins (2020) lamented the high level of anonymity in bitcoin account ownership makes it nearly impossible to trace the perpetrators. A preliminary investigation by Twitter revealed the hijack was a co-ordinated social engineering attack; Twitter believed the attack was orchestrated by individuals who successfully targeted its working staff with tools and internal systems access. The hack into Twitter accounts of these iconic figures revealed systems-hackers with technological sophistry could latch on to or exploit human vulnerabilities to access valuable information and data.

Protection for private keys and vaults of bitcoin in the virtual currency markets is carried out in a number of ways for the safety of investments. This protection notwithstanding, Bitcoin networks remain attractive targets to hackers because is it almost impossible to recover stolen bitcoins; completed bitcoin transactions are not reversible, unlike wire transfers in the banking industry (Kirk, 2016). This affirms the level of sophistry of hackers in the technological and financial world.

Digital currency analysts such as Kirk (2016) have emphasised the need for virtual currency exchanges to engage in difficult, but useful trade-offs by investing to raise the level of security around bitcoin; they argued improved security features would increase the complexity of bitcoin while minimising access by system-hackers. Lewis (as cited in Kirk, 2016) noted the existence of a balance between convenience and security in the virtual currency markets. He observed even though customers often clamour for improved security around their investments, their behaviour suggests their preference to convenience including making customers’ private keys available on online machines. The author believed virtual exchanges which ascribe to this “convenient” request from their respective customers increase their risk of attack by predatory and sophisticated system-hackers.

Salami (2020a) described blockchain as an electronic medium for storing digital records of transactions. The blockchain platform allows individual records known as blocks to be linked together in a single list; this single list creates what is known as the blockchain. Blockchain by definition and function is expected to ensure consumers’ transactions are end-to-end encrypted. Similarly, the primary function of cryptography employed in cryptocurrencies is to assure security of messages sent and received in the virtual currency transaction process. Cryptography ensures messages exchanged among traders in the virtual currency markets are not decrypted or stolen by hackers. The aim of digital currency developers and miners is to protect the privacy of participants or traders in the virtual financial markets (The European Business Review, 2020).

Parry (2020) found the New Zealand stock exchange was a subject for daily cyber-attacks for close to a week in August 2020. This impelled the Government Communications Security Bureau (GCSB) of New Zealand to issue alerts to all businesses to prepare for further cyber-attacks. The attacks affected effective functioning of public-facing websites in the country. The New Zealand government described the attack as part of worldwide malicious cyber activity; and would rather divulge sensitive and vital information through the links of government-to-government, Interpol and the intelligence alliance called Five Eyes. Experts described the attack as distributed denial of service (DDoS) type, which was not designed to perform insider trading or steal data, but to demand ransom from targets and victims. These hackers often ask for thousands of dollars to be paid for in bitcoin or altcoins which cannot be traced. Parry (2020) revealed pranksters, political groups and governments are noted for using these attacks.

Cheah (2020) described the revolution that introduced bitcoin in 2009; and later introduced other cryptocurrencies as disruptive financial technology. However, he argued change is urgently needed in the global financial industry; and that, a major obstacle to financial innovation is the hostile environment created by outmoded regulations ascribed for defunct era. The author bemoaned failure of some DeFi projects as result of this development. Cheah (2020) corroborates Brown and Whittle (2020) who found governments have resorted to the use of bureaucratic processes as strategic means to delay the pace of development and growth of virtual currencies and their markets across the globe.

Salami (2020a) noted security-threats posed by the virtual exchanges to the international investor-community. She argued, although news on the absence of intermediaries such as banks is refreshing to investors, it increases risk of their respective investments in the global virtual currency markets. For instance, transacting businesses through financial institutions such as universal banks and investment banks allow the investor to hold the financial institution accountable in times of discrepancies; and for sanctions to be applied when necessary by the regulator in its jurisdiction. The virtual financial system and non-regulatory measures of digital exchange markets increase the risk of investors’ funds; and possible collapse of exchanges in the digital financial markets. Traders are likely to forfeit all their investments in times of system-hacks as recorded in recent and prior years. For instance, Mt. Gox, the Japanese leading virtual exchange was forced into liquidation in 2014 after its system was hacked-into, and 850,000 bitcoins valued at US$474 million were stolen from its coin-vault. Some conservative investors contended the lopsided risks favour investments in stocks and other assets such as gold to the investment neglect of cryptocurrencies.

Potts and Rennie (2020) argued technocrats supporting the development and mining of virtual currencies have demonstrated tremendous improvements; technologies adapted to ensure successful operations of virtual exchanges across the globe have improved considerably in recent periods. To ensure transactions on various digital platforms are safe, each token is duly recognised with a unique number and not spent twice. Developers subject themselves to rigorous computing processes. Intensity of the computing process results in some carbon emissions. The volume of these carbon emissions are believed to be in excess of those generated in some economies across the globe. For instance, Potts and Rennie (2020) found total carbon emissions from bitcoin mining exceeded total carbon emissions generated in Sri Lanka. Reiff (2020) defined mining as the process of developing encrypted codes for creation of cryptocurrencies.

However, Potts and Rennie (2020) affirmed recent technological upgrade known as Eth2 embarked on by ethereum was expected to transition its existing platform from blockchain to a proof-of-state system. This initiative would reduce the intensity of man-hours required in the computing processes while improving on environmental challenges such as high carbon emission rates. Meanwhile, developers of the blockchain technology are introducing new layers to facilitate use of blockchain technologies in financial markets. The most recent of these new layers is decentralised finance, also called DeFi (Salami, 2020a; Cheah, 2020). This new technology is relying on blockchain to build financial markets that are completely digital and automated without the need for intermediaries such as lawyers and banks. The new layers are expected to build on existing technologies in the virtual exchange markets to develop decentralised virtual exchanges; and to facilitate trade in derivatives without the services of traditional intermediaries such as central banks, universal banks, and stock markets. Potts and Rennie (2020) argued these developments in the global financial markets could only be made possible by blockchain and cryptocurrency infrastructure.

Bitcoin as Medium of Exchange and Store of Value

De Best (2020) recounted gradual acceptance of bitcoin as a medium of exchange for goods and services among retailers in the technologically-savvy industry; and increases in the number of bitcoin ATMs across the globe which are indicative of growing popularity and acceptance of bitcoin not only for investment purposes, but also for purchase transactions in many economies. These attributes notwithstanding, the current average confirmation time for bitcoin transactions is high relative to other technological platforms. This challenge renders bitcoin platforms less attractive and less suitable for small transactions. However, the introduction of altcoins such as litecoin, bitcoin cash and bitcoin SV to reduce transaction cost; and to allow for scalability and low average confirmation time helps to address the identified lag in current effectiveness of bitcoin for small transactions.

Brown (2020) believed a major challenge to the cryptocurrency industry is volatilities in per-token value for bitcoin. Some analysts argued the frequent volatilities do not encourage investors in the virtual currency markets to readily accept bitcoin and other cryptocurrencies as store of value and functional currency in the global business community. The volatilities lend credence and support to calls for ban on certain derivatives’ trading in the cryptocurrency industry. The ban, it is believed, would help reduce the level of volatilities in bitcoin and altcoins trading. However, effectiveness of an outright ban remains an on-going debate among some crypto experts.

Urquhart (2020) argued Satoshi Nakamoto’s underlying objective for limiting the total number of circulated bitcoins to twenty-one million was to curb inflation. Indeed, there is a relationship between demand and supply; price equilibrium and price stability are assured when demand equals supply; price experiences upward adjustments when demand exceeds supply; and price is often reviewed downwards when supply exceeds demand. Therefore, Urquhart’s (2020) argument of limited supply of bitcoins (21 million) could help fight inflation would hold when supply exceeds demand in the virtual currency markets.

However, steady increase in price per token of bitcoin in recent years does not support Urquhart’s (2020) assertion. Evidence suggests growing acceptance of bitcoin and other cryptocurrencies, implying increasing demand relative to supply. Limited supply of bitcoin relative to “unlimited” demand in the virtual currency markets makes it an inflation-vehicle; per-token price is likely to increase exponentially when internal and external financial market conditions support investments in bitcoin. The inflation recorded through steady increases in price per token of bitcoin inures to the investment benefits of traders, especially hoarders in the virtual financial markets.

Market capitalisation value of circulated bitcoins as of early January 2020 was estimated at US$133 billion, equivalent to £102 billion. This was about 1.66% of the estimated global value of gold (US$8 trillion) during the period. Based on this relative comparison, Brown and Whittle (2020) concluded virtual currencies’ chances of supplanting the global financial system in the immediate- or medium-term are remote. This assertion was significant to the current research which sought to examine the impact of market capitalisation value for bitcoin on global economic output.

De Best (2020) and The European Business Review (2020) identified a relationship among demand, price and market capitalisation for bitcoin. To illustrate, the number of bitcoins in circulation is 21 million. Due to the limited or fixed supply, the per-token value for bitcoin is dependent on its demand in the digital currency markets. Thus, all things being equal, increased demand relative to limited supply would lead to excess demand over supply; and this development could result in upward adjustment of bitcoin price in the cryptocurrency markets. Stated in different terms, increased demand over supply would lead to an increase in the per-token price of bitcoin. The predictability and slow pace of increases in supply of bitcoin suggest its market capitalisation value depends largely on the price per token. In the illustration, an increase in price per token multiplied by the total number of circulated bitcoins would assure higher market capitalisation value. To reiterate, the virtual currency markets are inundated with over two thousand different types of cryptocurrencies (Reiff, 2020). However, The European Business Review (2020) singled-out bitcoin as the most important for trading in the global digital currency markets.

Salami (2020a) observed some unique features associated with cryptocurrencies include decentralised services and absence of intermediaries such as banks. These qualities are believed to expedite transaction processes while eliminating several administrative bottlenecks that are believed to be antiquated; and retard financial progress in the business environment. These attributes encourage investors in the global stock markets to seek investment refuge in cryptocurrencies such as bitcoin when the stock markets are characterised by downturns. This explains significant gains made by bitcoin and other altcoins in 2020, in spite of the global financial downturn occasioned by the COVID-19 pandemic.

Brown (2020) estimated people in the United Kingdom with ownership in cryptocurrencies at 1.9 million, equivalent to 4% of the total adult population; and 2.80% of the mid-year estimated total population of 67,886,011 people (Worldometer, 2021). However, overwhelming majority of these traders (about three-quarters) could be described as retail investors with holdings not more than £1,000.00. In 2019, one-fifth of UK’s virtual currency traders invested in cryptocurrency derivatives. Thus, use of cryptocurrency futures and options as strategic hedge against underlying assets such as bitcoin and altcoins in the virtual financial markets was found to be on the rise in the United Kingdom. However, the author admitted the main users of cryptocurrency derivatives may not be retail investors; the latter may constitute a small fraction of derivatives users in the cryptocurrency markets. For instance, in early 2020, one of the cryptocurrency trading sites, eToro (as cited in Brown, 2020), noted only about one-tenth of the total retail investors on its platform invested in virtual currency derivatives. This is consistent with one of Ashley’s (2018) recommendations which suggested the need for investment in bitcoin as a derivative by economies and corporate bodies (p. 226).

Urquhart (2020) revealed transparency in decentralised systems of virtual exchanges; ability to read available transactions on blockchain; and share of equal power among network members in the virtual financial system. On 11th May, 2020 bitcoin went through “halving;” the third in the series. Urquhart (2020) affirmed this important adjustment to the operation of bitcoin and other cryptocurrencies happens every four years. Although there are no clear reasons for developers and miners’ decision to halve bitcoin after a certain period, speculations among some analysts were rife; they believed the initiative is intended to attract potential investors to the areas of systems development and mining to increase distribution of tokens in the virtual financial markets. Brown and Whittle (2020) described the process as an opportunity for system developers and miners to add new coins to the network; these newly-introduced coins are halved; and the “shortage” could drive per-token value of bitcoin upward.

Brown (2020) observed investors in the virtual financial markets tend to increase their chances of being highly levered when they purchase cryptocurrency derivatives. That is, the derivatives increase investors’ borrowing and by extension increase the size of their respective trades for higher potential gains; and in some cases losses, especially when the virtual currency markets record downturns. However, investment leverages in the virtual currency markets vary from exchanges to others. For instance, some virtual currency exchanges allow investors to borrow more than hundred times the size of their respective trades while exchanges in Asia limit borrowing to fifteen times the size of investors’ trades. Generally, investors enter and exit the virtual currency markets more frequently when their investments are leveraged; the leverage increases investors’ trade gains or losses in proportion to their borrowing limits.

Public pronouncements of renowned CEOs, businessmen and women have the tendency to influence prices of assets such as bitcoin and other cryptocurrencies in the global financial markets. For instance, Del Rio (2020b) reported that simple tweets on dogecoin by Mr. Elon Musk on 20th December, 2020 were enough to increase the per-token value of the virtual currency (dogecoin) by 25%. Mr. Elon Musk is the CEO of Tesla and Space X; and the second-richest man in the world after Mr. Jeff Bezos, CEO of Amazon.

Urquhart (2020) noted as at 14th May, 2020 the total number of bitcoins in circulation were 18.38 million, meaning there were only 2.62 million (21 million – 18.38 million = 2.62 million) bitcoins left in the coin vault during the period. The author argued regular halving of bitcoin may encourage investors to hold on to bitcoin as a speculative asset rather than perceive it as a medium of exchange or fiat currency such as the American dollar and British pound sterling. Extant literature suggests although bitcoin is experiencing growing popularity in its use for purchases in international transactions and markets, many consumers still focus attention on its viability for investment purposes than for purchases.

In spite of the risk therein, investors in the virtual currency markets are always looking for volatilities in bitcoin trading to maximise profits. De Best (2020b) argued merchants’ limited knowledge about Bitcoin network and its related technology coupled with bitcoin’s volatility affirms their reluctance to generally accept it as a medium of payment for certain transactions. The increase in number of circulated cryptocurrencies (over 2,000 digital currencies) as at January 2020 (Reiff, 2020) was indicative of growing competition, though bitcoin remains the dominant force in the virtual currency markets. To re-echo, bitcoin is the original and first-ever popular digital currency; and currently controls more than 40% of the cryptocurrency markets (The European Business Review, 2020). Further, improvements in Bitcoin network’s services, including consumers’ ability to convert bitcoin into cash with relative ease; and popularity of bitcoin facilitate its exchange for the American dollar and European euro. The volume of bitcoin trading is very high; and investors could obtain bitcoins from all the virtual exchange markets across the globe.

Other successful businessmen and women have also wielded into the debate on the pros and cons of trading in bitcoin and other cryptocurrencies in the global digital currency markets. In a recent interview with Forbes (as cited in Entrepreneur Staff, 2020c), Mr. Mark Cuban, the American businessman, investor, billionaire and owner of the Dallas Mavericks baseball team in the United States down-played the future fortunes of bitcoin, in spite of its extraordinary rise in value in recent periods. Mr. Cuban was indifferent in opinion on bitcoin; he argued bitcoin does not and would not have the magic-wand to be transformed from an “ordinary” financial tool into a reliable currency. He asserted bitcoin belongs to the gold-asset category which has succeeded in moulding itself more into a religion than proffering solution to challenges in the global investment and business community.

Further, Mr. Cuban (as cited in Entrepreneur Staff, 2020c) described on-going public discourse on bitcoin’s ability to replace fiat currencies as counter-productive. His argument stemmed from the fact that economies would take proactive and reactive steps to counter measures that would restrain their ability to impose taxes; and to protect their respective national legal tenders. This development, it is believed, would not increase the investment population that would be interested in bitcoin as a store of value since the latter has the tendency to increase governments’ interventions or counter-measures in the operations of virtual currency markets. The foregoing notwithstanding, bitcoin and gold have been described as rare assets; and important vehicles for store of value in recent years. This recognition is affirmed by bitcoin’s classification alongside gold as a commodity by the United States Commodity Futures Trading Commission (CFTC).

Brown (2020) concluded the effect of investors’ leveraging activities on the market contributes immensely to price volatilities. This notwithstanding, in recent periods, bitcoin has been noted for trading at an all-time low for volatility, implying the intended ban on trading in cryptocurrency derivatives by amateur investors may not serve useful investment-security purpose. However, the author did not underestimate the overall essence of United Kingdom’s intended ban on investment in cryptocurrency derivatives by inexperienced traders in the virtual currency markets.

Financial regulators’ decision to indict operators of some virtual exchanges for various breaches may have dire consequences for the cryptocurrency industry; investors may not become nonchalant as a result, and may decide to withdraw their respective investments. This development could create liquidity crisis in the digital currency markets (Brown, 2020). However, this may be limited to virtual exchanges in the implied jurisdictions. That is, the overall effect of the foregoing measures on the global cryptocurrency markets may be insignificant since use and popularity of bitcoin and other cryptocurrencies continue to surge; and the ban may affect only operators in prohibited jurisdictions.

Brown (2020) asserted efficiency of virtual financial markets is enhanced by derivatives trading; the latter contributes to increased market efficiency by allowing investors to hedge their bets against underlying assets. To this end, a partial ban on derivatives in one jurisdiction may be perceived as a setback to development of the global cryptocurrency industry. Inherent threats to the global cryptocurrency industry may soon draw reactions from major regulators such as the Federal Financial Services Authority (BaFin) in Germany; and Securities and Exchange Commission (SEC) in the United States.

Urquhart (2020) found the decision to halve bitcoin has some implications; total number of bitcoins circulated daily would reduce to half while daily revenue derived by miners could also reduce to half. As an illustration, suppose 12,000 new bitcoins were circulated daily prior to the halving. Implementation of the halving system means the number of bitcoins circulated daily would reduce from 12,000 to 6,000; and miners could now derive revenue from the sale of 6,000 bitcoins instead of 12,000 bitcoins. Halving is to some extent analogous with a split that results from hard fork. All else held constant, until the halving results in the emergence of a new digital coin, there would be shortage in supply of bitcoins in the virtual currency markets. Some analysts argued this development could lead to an increase in per-token value of bitcoin through the creation of bullish market condition while least efficient miners may be compelled to exit the virtual currency markets due to reduction in their earnings or revenues.

Licardo (2020) found entrepreneurs have joined in the growing debate on investments in the cryptocurrency industry. With the recent spate of per-token value increases, entrepreneurs have begun to wonder if their failure to adapt bitcoin as a medium of payment could potentially result in a missed opportunity; and even compromise growth of their businesses in the medium- and long-term. Notable organisations such as AT&T, Microsoft, Wikipedia, and many others, have started accepting bitcoin as payment method and option. In addition, about one-third of small and medium-size businesses in the United States were reported to have joined in the recognition of bitcoin as a means of payment for various transactions while some banks were accepting bitcoin as a deposit method. Finally, bitcoin exchange traded funds have become common investment source in the United States in recent periods.

Brown (2020) argued the decision by financial regulators in the United Kingdom to place a ban on investments in cryptocurrency derivatives by inexperienced investors was in order, given the enormity of risks inherent in cryptocurrency trading; and excessive risks taken by most unprofessional investors in the virtual currency markets in the United Kingdom, Europe and across the globe. The author’s argument suggests each economy could tailor her regulations to suit and address identified challenges; the regulatory measures and approach may not be blanket across jurisdictions. Jorner (2020) likened the role of digital currencies in the global financial markets to the role of email in communications; and concluded that popularity of bitcoin as a means of transferring value within and across borders is on the significant increase.

Jorner (2020) affirmed current transactions and payment methods in the global business sphere attest to the fact that we find ourselves officially in the Fintech age. The author submitted the recent COVID-19 pandemic and its resultant social and physical distancing rules coupled with increased cashless payment methods have propelled bitcoin and altcoins into the mainstream global financial system; and these cryptocurrencies are having profound influence on the modus operandi of the global financial system. Jorner (2020) argued the technology behind digital currency is real. As a result, there is an increasing shift in paradigm from the traditional payment methods to the digital payment age, which has speed and easiness as some of its unique benefits.

Potts and Rennie (2020) found token-swaps in the virtual financial markets were becoming a common place owing to the adaption and use of bitcoin and altcoins through the stablecoins system, which allows investors to hedge against values for fiat currencies of key central banks such as the American dollar, British pound sterling, European euro, and others. Brown and Whittle (2020) and Cheah (2020 described the stablecoins system as hybrid of virtual currencies living on blockchain technology platforms, and pegged to mainstream fiat currencies. It is worth-asserting the respective unit values for the American dollar (US$1.00) and British pound sterling (£1.00) on 26th December, 2020 were a far-cry of per-token value of bitcoin denominated in the American dollar (US$24,826.14) (Coindesk, 2020). Undoubtedly, cryptocurrencies have emerged on the global financial markets as a new asset class (Nadler & Guo, 2019).

Brown and Whittle (2020) maintained some multinationals would latch on creation of the stablecoins technology to heave some sigh of relief in the global financial system. Multinational institutions may attempt to challenge sovereign money by opting out of the current global financial system they have been impelled to operate in; and which many have described as clumpy with its attendant delays in international payments; and high transaction fees. The stablecoins system presents multinational institutions with unique opportunity to present their clients with an appealing alternative to the existing global financial system, which has been described as antiquated (Kirk, 2016). Brown and Whittle (2020) contended some multinationals are not lending their support to bitcoin and other cryptocurrencies. Rather, the multinationals are considering invention of the stablecoins system because they believe bitcoin and other cryptocurrencies have as many challenges as the mainstream financial system they seek to opt out of.

Urquhart (2020) estimated gains made by bitcoin in the virtual exchange markets from January through May 2020 at 20%. The estimated gains (20%) were prior to the halving on 11th May, 2020. The previous halvings were believed to have resulted in stagy bull runs in the history of bitcoin. However, the halving in May 2020 coincided with global economic challenges occasioned by the predatory COVID-19 pandemic. The pandemic outbreak compelled international financial bodies such as OECD, World Bank and IMF to review their respective global GDP growth targets for 2020. In its April forecast, the IMF predicted 3% decline in global GDP growth target for 2020; and the growth target was expected to decline further. Economic challenges in the United Kingdom in the wake of the pandemic impelled the Bank of England to project 30% decrease in the country’s GDP in the first half of 2020. These global economic and financial challenges and uncertainties were expected to have adverse effects on trading of bitcoin in the digital currency markets.

Jorner (2020) reminded financial actors that we cannot find ourselves in the global economy and continue with transactions like a small town whose progress is strained by local restrictions to payment methods, excessive charges, avoidable taxes on transactions; and financial systems that are over fifty years old and need an overhaul. The author’s argument corroborates clarion calls by some economic and financial analysts for the existing structures related to the global financial system to be reviewed, rebranded and tailored to synchronise with current trends in the global financial markets, including rapid recognition of novel cashless system couched in bitcoin and altcoins.

Dynamics in the virtual currency markets and the global business environment in general prompted Brown and Whittle (2020) to conclude by 2030, it may probably be difficult to recognise money based on its known-functions today. This presumes virtual currencies are beginning to reshape the appearance and functions of traditional fiat national currencies. The authors predicted the extent of multinational influence in nation-states in the second-half of the current century presupposed the next bitcoin would emerge from the multinational world, either with a corporate brand or sovereign flag. Stated in different words, the existing bitcoin and altcoins do not hold the key to the future of the global cryptocurrency industry. Rather, sovereign or corporate virtual currencies would be created to dominate and assure success of the virtual financial markets.

Periods of global economic uncertainties tend to impact negatively on the performance of stocks, but favour other investment assets including cryptocurrencies. It is argued currencies of some economies become vulnerable to devaluation during economic crisis periods such as the recent outbreak of COVID-19 (Urquhart, 2020). This exchange volatility makes bitcoin useful alternative investment tool in financial crisis periods; individuals, corporate bodies and governments could invest in bitcoin as a derivative to hedge against their national fiat currencies. Investments in bitcoin and other reliable cryptocurrencies during economic crisis periods provide the requisite insurance cover and protection for fiat currencies, national debts and national investments. The foregoing statement holds for individual and corporate investments.

High volatility strongly affects price stability in the virtual currency markets; price per token quoted today may differ tomorrow; the price may increase or decrease depending on internal and external market conditions. In spite of these challenges, Potts and Rennie (2020) believed the “scripts” for bitcoin and other cryptocurrencies were being rewritten; analysts could attribute substance to increases in price per token of digital coins in the virtual financial markets. This douses the flame of uncertainty which had surrounded trading activities of bitcoin and altcoins in prior and recent years.

One of the main reasons for regulators in the United Kingdom’s decision to ban amateur investors from trading in cryptocurrency derivatives was lack of reliable basis for valuation of bitcoin and altcoins (Brown, 2020). Some analysts described this “reason” as an improvement over earlier one which stated there was no “scientific” basis for valuation of cryptocurrencies. Nonetheless, bitcoin and altcoins are believed to be speculative and volatile assets (Potts and Rennie, 2020). The tendency to gain or lose is high; and prevailing market conditions call for due diligence and rational decisions on the part of investors. Should the virtual currency markets witness sustained price increases over a long period without a bubble burst, it may be as a result of the transition of cryptocurrencies from the current state of “who wants to get-rich quickly?” to a state characterised by stable economic infrastructure (Potts and Rennie, 2020).

Brown and Whittle (2020) contended it is extremely difficult for governments to control cryptocurrencies because they are underpinned by encrypted blockchain technology. The encryption makes any decision to completely eliminate virtual currencies unlikely to be feasible. The authors averred the indispensable role of bitcoin and altcoins in geopolitics; cryptocurrencies serve as geopolitical hedge in periods of international conflicts: the recent escalation in tensions between the United States and Iran led to increases in demand; and increase in token price of bitcoin and altcoins in the cryptocurrency markets across the globe. Consequently, investors are beginning to seek refuge in bitcoin and other cryptocurrencies in times of uncertainties in the global stocks and other related markets.

Nadler and Guo (2019) sought to ensure fair evaluation of digital tokens through the estimation of their pricing kernel, a pricing factor used by investors to determine their virtual currency holdings. The authors investigated how traditional risk factors including market risk were evaluated; and how specific risk factors related to blockchain were considered in the pricing process. To achieve the foregoing objective, the researchers adapted an asset pricing model and modified its properties to align with virtual currency markets. Findings from the research revealed paradigm shift in risk factors from bitcoin to ethereum-specific risk factors. Further, the research outcomes revealed specific risk factors of blockchain were considered in determination of the price per token for digital currencies. Growing importance of market factors served as evidence for separating on-chain from off-chain trading activities in the cryptocurrency markets.

Potts and Rennie (2020) outlined and explained three underlying reasons for recent changes in perception of key financial regulators and financial institutions on the economic usefulness of bitcoin and other cryptocurrencies to the global financial markets; and to the global business community. These included the introduction of a new digital currency; maturing state of cryptocurrencies’ technology; and growing appreciation for the value of bitcoin and other cryptocurrencies. The authors asserted the fundamental objective for the introduction of novel digital currency is to facilitate domestic and international trade; and to ease payments involving huge sums of money within and across borders. One of the non-pharmaceutical interventions identified as useful to curbing further spread of the COVID-19 pandemic was physical and social distancing. Effectiveness of the foregoing called for the implementation of cashless payment systems, paving way for accelerated interests in digital currencies such as bitcoin and altcoins. Today, bitcoin facilitates activities in the digital economy including trading in gold and leading stocks of companies such as Zoom, PayPal, Apple, Microsoft, Amazon and Etsy.

In spite of the initial apprehension, anxiety and rejection, Potts and Rennie (2020) found growing popularity of bitcoin and other cryptocurrencies among institutional investors across the globe. For instance, the CEO of BlackRock, Mr. Rick Rieder, was of the firm belief that cryptocurrencies have come to stay in the global financial and business markets. BlackRock is the leading investment funds management company across the globe with assets worth over US$7.4 trillion under its management. As at November 2020, total cryptocurrency assets held for institutional investors by Grayscale Investments, a managing firm for cryptocurrency assets based in the United States, were valued over US$10 billion. In the first week of December 2020, Guggenheim Partners announced its ability to invest up to US$530 million in bitcoins through Grayscale Investments. Guggenheim Partners is a global financial services company managing assets worth more than US$275 billion.

Salami (2020b) found steady growth in the market for crypto-lending and its possible entrenchment due to the introduction of new financial services regulation which seeks to align cryptocurrency transactions with banking services. Beyond the ordinary, the author was convinced the extent of service-growth places the market for crypto-lending in a position to replace traditional banking services in the next few years while the role of crypto-assets in mainstream global finance cannot be underestimated. The principal objective for creation and introduction of bitcoin and other cryptocurrencies is to liberate investors from the “shackles” of the traditional global financial system; and from the claws of elites who control it. Contrary to initial expectations, the traditional global financial system and its elites are embracing cryptocurrencies and their accompanying technologies.

Due to the perceived inherent high volatility in bitcoin and altcoins, Brown and Whittle (2020) were optimistic that either sovereign or corporate digital tokens or both hold the key to the future of the cryptocurrency industry. The authors argued the sovereign and corporate systems which were alleged to be under threat from bitcoin and altcoins are rather beginning to appreciate; and are already in the process of adapting digital coins. Perhaps, the sovereign or corporate digital coins to be created would not use blockchain technology; their functions may be similar to those of WeChat Pay or PayPal.

Notwithstanding the fortunes made by some individual and institutional investors in bitcoin and altcoins trading, Potts and Rennie (2020) postulated the decision to invest in cryptocurrencies at the peak of the market remains a gamble; and that, the ideal period to invest in virtual currencies is when the markets are crowded with uncertainties and unit prices of virtual currencies are low. All else held constant, during peak market periods, investors’ risk of buying high and selling low increases due to a possible bubble burst, which could plunge per-token prices. However, investors’ risk (when they enter the virtual markets during peak periods) may be lower, if factors such as speculations are controlled to assure market stability through sustained and uninterrupted trading activities; and stable prices of digital currencies.

Brown and Whittle (2020) claimed some principal actors in the global financial markets such as multinational institutions are reluctant to use bitcoin and other cryptocurrencies as store of value due to the high volatility inherent in their respective prices per token; and their yet-to-be impressive processing of financial transactions. Besides, most multinational institutions perceive the creation and launch of their respective digital currencies as an opportunity to increase customers’ experience while they gain total “customer” control by selling goods and services; and introducing a new service, that is, monetary system to facilitate payments for transactions. In essence, each multinational has the opportunity to become one-stop-shop for its individual customers and corporate clients.

Salami (2020b) saw bright future for bitcoin and altcoins in the global cryptocurrencies markets. However, the foregoing optimism was at variance with the pessimism expressed by Brown and Whittle (2020); these authors argued the productive days of bitcoin and already-existing altcoins in the virtual exchange markets across the globe are numbered; and that, sovereign coins or corporate coins, or a combination of the two would soon dominate the global virtual financial markets. Nonetheless, available data on per-token and market capitalisation values for bitcoin and altcoins support Salami’s (2020b) argument.

A co-founder at Chainlink, Mr. Sergey Nazarov (as cited in Nagarajan, 2020), identified three theories which support bitcoin’s role as an alternative to existing fiat currencies. These include constant increase in inflationary levels; increased institutional adoption of crypto-solution; and increased security for financial products stemming from decentralised financial ecosystem. Investors rely on this measure to combat inflation. Mr. Nazarov (as cited in Nagarajan, 2020) argued bitcoin’s ability to break the US$20,000 threshold in value per token proved the foregoing theories.

Del Rio (2020a) noted predictions by some virtual market analysts that the per-token price for bitcoin would soon be quoted at US$30,000. Similarly, Mr. Alex Mashinsky, CEO of Celsius Network (as cited in Nagarajan, 2020) believed bitcoin’s price per token would hit the US$30,000 threshold. However, he maintained the per-unit price may thump between US$14,000 and US$16,000 through speculations in the financial streets and rebound to higher price levels. Mr. Mashinsky (as cited in Nagarajan, 2020) believed this slump in price to between US$14,000 and US$16,000 would be the only time investors may have the opportunity, ever again, to purchase bitcoin at a price lower than US$20,000. The submission affirmed Mr. Mashinsky’s (as cited in Nagarajan, 2020) conviction in long-term sustainability of bitcoin trading and related activities in the virtual currency markets across the globe. This was corroborated by Jorner (2020) who concluded bitcoin and altcoins have come to stay in the global financial markets.

Jorner (2020) maintained the argument that digital tokens are not yet applicable to daily living and payment needs may hold in 2009 when bitcoin was first introduced as an example of cryptocurrencies. However, with passage of time and current innovations in the digital currency markets, the foregoing argument may not hold; the argument may not pass practical tests on cryptocurrencies including bitcoin in contemporary periods. Licardo (2020) identified and summarised benefits to be derived from bitcoin into four. These include lower fee payments, protection against fraud, transaction easiness, access to international clients; and creation of media and brand awareness. The author noted trading in bitcoin provides dual benefits; it helps concurrently to increase awareness of the selling company’s brand; and to market bitcoin and other cryptocurrencies that may be traded on the virtual exchanges.

Jorner (2020) asserted trading using bitcoin guarantees faster payments, convenience, easiness and affordability. Emphasis on faster payments as one of the benefits of bitcoin by Licardo (2020) and Jorner (2020) is at variance with Reiff (2020) who found altcoins such as litecoin and bitcoin SV were created to improve on the slow transaction processing pace and time of bitcoin. Perhaps, Satoshi Nakamoto and his team of developers have been able to improve on the transaction speed of bitcoin to merit such attribute from Licardo (2020) and Jorner (2020).

Author’s Note

The above write-up was extracted from an earlier publication on “Effect of Bitcoin Trading on the Global Economy” by Ashley (2022) in the Global Scientific Journal.

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