Expectation of a global economic crisis is becoming one of the dominating factors in the global economic development. Realignment of the global financial system is perceived as the core element of the crisis, not only due to the changing balance of influence between different financial centers but also due to the shift in the entire architecture of the global financial space.
Inevitable decline in the dollar influence as an aspect of the financial crisis is defined by the growing amount of non-economic and, therefore, non-calculatable (according to the common economic methodology) risks based on the dollar being an instrument of conversion and investment. When the amount of such risks equals the level of risks in other currencies or investment surrogates, the situation in the global financial system may rise to a different qualitative level.
Cryptocurrencies and all new formats of financial communications were side products of the economic development during later globalization characterized by accelerated qualitative development of financial communications in the context of increasing investment superfluity and inability of both the financial sector and the real sector of the economy to absorb the multiplying financial resources.
The lack of transparent mechanisms of value formation did not provide for using cryptocurrencies as means of savings and long-term investment. In these conditions, cryptocurrencies could not form a basis for any long-term investment cycle.
Cryptocurrencies’ function is to manage the risk-generating assets in the grey areas of the global financial system. As fiscal administration strengthens at both the national and global levels, this function will obviously grow in demand.
Overall, it is expected that in the short term, various formats of money will polarize as tools of transaction, savings and investment – mainly, short-term investment. This will result in the convergence effect – naturally, within certain limits – of fiat currencies with the most common cryptocurrencies. A new operating space for cryptocurrency development is being created. But in the current form, development of the full-scale cryptocurrency investment will be hindered.
The development of even minimal safety mechanisms for cryptocurrencies will create a qualitatively new situation in the investment landscape at least for a period – while the post-crisis global and regional financial architectures are fully formed and there is a clear understanding of the nature of financial and investment models appropriate for the new economic conditions.
In their current form, cryptocurrencies cannot be fully used in the new payment systems. In any global financial sector development scenario, cryptocurrencies may enjoy demand in the post-crisis world as a buffer in mutual settlements in a specific operational and investment context.
This results in an interesting substantive and conceptual controversy: cryptocurrencies have a chance to obtain a new operational status through de-globalization; moreover, cryptocurrencies can and should become an element of de-globalization. Yet, at the global level, they will remain a speculative tool and a means of dealing with the market overhang.
The point of vulnerability for cryptocurrency is its link with the consumer market, and its concentrated circulation in finance, especially financial speculation.
The main limitation for cryptocurrencies will remain unchanged, however: they cannot perform saving functions without a risk hedging mechanism.
“New cryptocurrencies” (cryptocurrencies 2.0, as they will become the second generation of cryptocurrencies) can be defined as non-cash (virtual) anonymized payment and clearing surrogate with at least rudimentary insurance of operational risks (commodity or gold hedging), free current circulation rules and relatively transparent monetization mechanisms.
By Dmitry Evstafiev, Professor at the Communications, Media, and Design Department/School of Integrated Communications at the National Research University Higher School of Economics (HSE)