By Michael J Defosse - December 06, 2017
In the United States, we have defined generations based upon major cultural, political and economic influences so it may be time to recognize the next generation as the Bitcoin Generation. Changes are ahead for this generation and the success (or failure) of cryptocurrency may be a defining event.
My father was part of the Greatest Generation, which was first defined by Tom Brokaw. It symbolized those that lived during the Great Depression and fought in World War II. This group is characterized as the generation that had a strong work ethic, were prudent savers (a valuable lesson learned from the Great Depression and war time), took personal responsibility for their actions and were humble.
As a Baby Boomer, my generation inherited a strong work ethic from our parents but we are also identified as being competitive, goal oriented, independent and driven to succeed. While resourceful, Baby Boomers have saved less and believe in enjoying the benefits of our accomplishments sooner rather than later.
The Millennials soon followed and can be viewed as multi-generational for they are sometimes referred to as Generation Y, Digital Natives, Generation Me, Generation Rent and Echo Boomers. It is not that they have an identity crisis but more that they have differing viewpoints and traits.
They are on track to be the most educated generation with the added footnote that Millennial women are outperforming the men in the classroom. In addition, this generation has been fastest to adapt to the digital world as they were born into it. With their technology skills, they have advanced innovation and entrepreneurship to new levels as well as setting the stage for the next generation.
I must give credit to the Millennials who got the ball rolling with the development and acceptance of cryptocurrency or digital currency, such as bitcoin, but the real benefit will be passed on to the next generation as they push the limits of a cashless society. One question that the “Bitcoin Generation” will need to answer is can they gain global acceptance and take cryptocurrency to the next level.
Traditional currency is backed by a standard, such as gold, or the credit worthiness of a country, which helps to determine its real value. Currency is used as a medium of exchange for goods and services. With technology advancements, we are moving further away from a physical currency exchange to an electronic exchange for transactions and commerce. The next step in the evolution could be the type of currency that we use.
Cryptocurrency is a digital currency that uses encryption techniques to regulate the units of currency generated and to verify the transfer of funds. Since it is issued outside of a central banking authority, it is considered immune to government interference or manipulation.
While not the first cryptocurrency to be created, Bitcoin is the most recognized. For the 12-month period ending November 30, 2017, the price of Bitcoin increased 1,173%. Although the first issuance occurred in 2009, much of the growth and excitement over Bitcoin has taken place during the past 2 years. In fact, the number of hedge funds that have invested in Bitcoin since August 2017 rose from 55 to over 169 currently.
The success of Bitcoin is not isolated. Another popular cryptocurrency has been Ethereum or Ether. For 2017, it has risen from under $10 at the beginning of the year to over $400 currently, which is a year to date (YTD) return that exceeds 4,000%. (CoinMarketCap)
The current regulatory state of cryptocurrency has been compared to the American wild west of the 19th century but it is slowly improving. Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Nepal appear to be a few of the countries that have a ban on Bitcoin. China began to ban Bitcoin exchanges and initial coin offerings (ICO), which a form of raising capital that does not have the same regulation as an initial public offering (IPO). While a ban may be excessive, it illustrates the concern that is presented by cryptocurrency.
What can help is the rise of recognized exchanges developing Bitcoin related products that function as a risk management hedge. The first Bitcoin futures in the United States will begin trading in mid-December. The CBOE will launch on December 10th and this will be followed by the CME launch on December 18th. With the rapid rise in prices, a futures contract can offer downside protection. With more exchanges looking to create derivative contracts on cryptocurrencies, it would help to provide some price stability and to legitimize its existence.
Even with greater global acceptance, more regulation and hedge protections, there is still a high degree of risk for investing in Bitcoin, Ether or any other cryptocurrency but there is also a considerable upside for accepting the risk. While cryptocurrency represents a medium of exchange, they are not backed by the creditworthiness of any government or any gold standard. The rapid rise in price over the short term can also be quickly reversed in a market correction. What goes up, must come down, correct?
Another notable risk is cyber theft or hacks. Even the best encryption is not immune to motivated hackers. In July 2017, tokens valued at over $30 million were stolen by cybercriminals and in November, more than $300 million was lost due to a series of bugs in a popular digital wallet that stores cryptocurrency.
The Millennials started the party and they will continue to be involved in the evolution but the baton will eventually be passed to the next generation, who will assume the responsibility to either continue upon the path of a cashless society, influenced by cryptocurrency, or to pursue a different solution. Either way, I see the current generation as one that was introduced to Bitcoin and they will be influenced by it, both positive or negative. One thing is for sure as we near 2018. There is much to still be written on the future of cryptocurrency.