01.04.202103:57 Forex Analysis & Reviews: Monumental and Audience differences: Why digital currencies are unlikely to displace Bitcoin

The market is experiencing a local decline despite the positive dynamics of the growth of cryptocurrency indicators in recent days. Among other things, this is due to the statement of the chairman of the Bank of Korea, who predicted a decrease in demand for bitcoin because of the release of digital analogues of national currencies (CBDC) by world central banks. Among the main arguments, proponents of this theory call the high volatility of the asset and complete independence, which makes digital coins a dubious means of payment. However, the large army of cryptocurrency supporters has no reason to panic.

Or rather, almost none. The only scenario in which CBDC will fully replace bitcoin and cryptocurrencies will be an open war with digital assets. A similar situation is happening in India, where the government plans to completely ban the use of bitcoin. In this case, the trading volume of the BTC/USD pair, which is currently at around $197 billion, will significantly decrease. But in global terms, this will only reduce the asset's dominance in the market to 50%.

In order to properly discuss the reason why CBDCs will not replace bitcoin, we first need to debunk the myth that cryptocurrencies can not be a means of payment. The weekly growth of the indicators of the main digital assets depends entirely on the increased demand for crypto assets. The market was in standby mode, but after the announcement from Tesla, PayPal, and Visa, the BTC/USD pair increased by 9%, while the ETH/USD pair rose by 5%. This suggests that customers of payment systems around the world are very positive about cryptocurrencies as a means of conducting everyday financial transactions in the future. Among the latest announcements related to the promotion of crypto assets as a means of payment, it is worth mentioning the creation of a mobile wallet for paying for services and products by Bakkt and Starbucks.

The fundamental difference between the main cryptocurrencies and digital currencies is that crypto assets do not have a narrow legislative regulation. This allows Bitcoin, Ethereum, and other digital assets to be independent of monetary policy, interest rates, the volume of issues, and legislative restrictions of specific central banks. This makes them more versatile and multifunctional tools that do not depend on events in the narrowly focused financial space of a particular region.

In addition, potential CBDCs and cryptocurrencies have different target audiences, although they may overlap due to a more extensive list of opportunities for digital assets. Above all, however, digital currencies can displace fiat transactions at the expense of faster and cheaper transactions. However, under certain conditions and technical support for specific conversion algorithms, this function can be taken over by Ethereum 2.0, the launch of which is expected very soon. This is a very important aspect, as some CBDCs currently have every opportunity to break into the stablecoin market and partially affect the volume of USDT and USDC. At the same time, not all digital currencies have the technical capabilities to displace stablecoins at the current stage of development.

We should also not forget about the investment attractiveness of individual cryptocurrencies. On March 31, it became known that Goldman Sachs customers will be able to invest in digital assets. This is the second bank in the United States that has opened investments in cryptocurrencies for its users (the first was Morgan Stanley). In addition, JPMorgan analysts called on large companies to invest in bitcoin to avoid inflationary losses due to the coronavirus crisis. In this case, the BTC/USD pair is a real competitor to gold. At the current stage, no digital currency has the same range of capabilities and applications as bitcoin. This suggests that in the foreseeable future, cryptocurrencies, and specifically bitcoin, will continue to strengthen their positions and set historical capitalization records.