Byte Me: crypto revolutionaries have a lot to prove

Cryptocurrencies had an incredible run last year, but for them to really hit the mainstream, their advocates should study the sort of old money institutions many of them oppose: central banks.

  • By Costas Mourselas
  • 31 May 2018
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After peaking in January this year, cryptocurrencies have crashed more than 60%, recovering less than 10% of those gains in a few months. While bitcoin evangelists try to spin this year's performance as "price consolidation", the truth is that interest in cryptocurrencies is nowhere near the highs of last December

This isn't necessarily a bad thing for them. Matching last year's performance would be an incredible feat for starters. There have also been fewer adverts for crypto brokers on the London underground, which is a positive for any tube traveller. 

Plenty of people now know that cryptocurrencies exist, and a good proportion of them have learned a bit about the clever blockchain technology that makes many of these products possible. 

But beyond that, there is little evidence that the massive influx in crypto investors came for anything but to inflate their net worth with the phenomenal bubble that burst in January. If investors cannot be convinced that cryptocurrencies are good for anything but speculation, they won't develop much more. 

The core people in cryptocurrencies, which includes investors, brokers, and tech enthusiasts, have an anarchistic streak. They love decentralisation and privacy and hate central banks (the clue is in the word central) and traditional financial intermediaries.

But now if this group has convinced the public that crypto and blockchain technology is interesting, the question is, what comes next? 

Regulators and central banks have spent the past year lobbying governments to properly regulate cryptocurrency exchanges and warning the public about fraud. But neither regulators nor crypto enthusiasts have done much to convince each other that their own ideas on currency are the correct ones. 

Debate still rumbles on as to how cryptocurrencies should be classified, as currencies, commodities or even securities. All the while that drags on, cryptocurrencies will likely remain an interesting way for amateur investors and financial institutions alike to speculate. 

But if crypto fans are serious about their product eventually replacing fiat currency, they will have to make a more convincing argument. In a revolution, the onus is on the revolutionaries to do bring the change.

The public doesn't need to be sold on the idea of central banks or their grip on monetary policy, because they won that argument years ago. People care that the money they put in the bank is broadly worth the same one day to the next. 

Most cryptocurrencies are extremely volatile and have few if any mechanisms in place that replicate the sophisticated decision making systems of central banks. Central bank staff comb though job reports, growth stats and academic research, while keeping a close eye on the political events that can rock an economy. 

They do this because they have a broad mandate to ensure price stability while supporting economic growth, using monetary policy to achieve their objectives. There is little evidence that those in decentralised cryptocurrencies have the first clue how to do this, or that they are even organised in such a way that they could if they wanted to.

There have been a few attempts at trying to create a stable cryptocurrency. For example tether, a cryptocurrency that ties its value to the dollar, is one example of a so called group of "stablecoins". Tether claims that it backs up every cryptocurrency token it issues with dollars in a reserve account somewhere, though the company has come under considerable press scrutiny. 

Carbon is an uncollateralised cryptocurrency that aims to keep its price close to the dollar. But by pegging its value, both cryptocurrencies outsource monetary policy, at least partially, to the US Federal Reserve. 

If the Fed decides to lower rates and cheapens the dollar, Carbon and Tether both take a hit. The users of these cryptocurrenices lose purchasing power.

And if the objective of cryptocurrencies is to get away from central bank control, indirectly outsourcing policy decisions to central banks doesn't seem the smartest choice.

This is important because for cryptocurrencies to really take hold, they have to be seen as a viable alternative to fiat currencies. They can only go so far as a means of casual investment. The public doesn't want to have a portfolio of dozens of cryptocurrencies, it wants to worry about just one. The one it can pay taxes with, the one it can buy groceries with, and the one the value of which will remain broadly the same from month to month. 

The crypto revolutionaries will have to make a very convincing argument to cause people to make that jump. Until then, vanilla cryptocurrenices will remain the playthings of financial institutions and amateur investors. 

  • By Costas Mourselas
  • 31 May 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 301,728.92 1170 8.05%
2 JPMorgan 294,792.92 1287 7.86%
3 Bank of America Merrill Lynch 277,049.56 932 7.39%
4 Barclays 229,666.94 852 6.13%
5 Goldman Sachs 204,014.81 670 5.44%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 BNP Paribas 43,227.81 174 7.06%
2 JPMorgan 38,825.76 78 6.34%
3 Credit Agricole CIB 33,071.14 158 5.40%
4 UniCredit 32,342.86 144 5.28%
5 SG Corporate & Investment Banking 31,330.98 120 5.12%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 13,022.65 55 9.04%
2 Goldman Sachs 12,059.06 58 8.37%
3 Citi 9,451.48 53 6.56%
4 Morgan Stanley 8,054.41 48 5.59%
5 UBS 7,829.15 30 5.44%