Cryptocurrency's potential for both investment and transaction purposes in Bangladesh economy


Cryptocurrency's potential for both investment and transaction purposes in Bangladesh economy
Bitcoin or cryptocurrency started as a mean of the next evolution of payment service, has turned out to be the future of finance or simple the money we look at. Through its radical volatility of prior action, it gained the focus of widespread financial media, but it is something more than that. Bitcoin with its revolutionary attributes dares to change the traditional financial system and creates full authority of the money of an individual as well as grow as a value holding asset. Now for Bangladesh, it is important to assess crypto’s benefits considering the current macroeconomic condition.

Firstly, cryptocurrencies, especially Bitcoin can be considered as an alternative opportunity of savings or investment against the traditional banking based financial system. There has been a general downtrend in the interest rate for the last 25 years. Besides, the current interest rate is below the mean level. Things get worsen as the current inflation rate is also standing neck to neck with an interest rate which indicates the yield is becoming insufficient while savings or investment is concerned.

Source: Calculated from Trading economics
Source: Calculated from Trading economics

Secondly, Bitcoin along with some prominent altcoins in the crypto industry has turned out to be the best performing asset over the last decades. Moreover, it has the highest upside potential to grow in multiples because of the scale of the market. 

Bitcoin's performance against major assets in the last decade
Source: Calculated from Trading view
Bitcoin as an asset is holding a market capitalization of around 300 million USD where the entire crypto space is still sitting under half a trillion USD. Comparing with 10 trillion USD of gold, silver and other commodity and precious metal and close to 100 trillion of equity, bond and treasury market, the risk to reward ratio is most favorable for the crypto. Another thing that needs to keep in mind is the finite supply shock with halving system will make this asset more valuable in coming days.

Bitcoin's market size comparing the market value of major asset classes
Source: Rafael Schultze-Kraft on Twitter
Thirdly, crypto currencies can be used to counter a potential negative interest rate scenario in near future. As we are living in the world of infinite liquidity where major central banks are printing cash like crazy. 

Bond yield matrix of some of the major countries
Source: Charlie Bilello on Twitter
As a result, inflation can rise higher and purchasing power can possibly decrease. With that, the poor performance of DSEX needs to be noted. All these catalysts are pushing people to look for a hedging option which will not penalize to keep the money and provide a decent yield on investment. Bitcoin or other crypto assets can be that ultimate solution.

Total assets of major central banks
Source: Yardeni Research
Fourthly, cryptocurrencies are much more efficient as a transactional medium compares to existing digital money, crypto is way more accessible with its usage like peer to peer transaction, 24×7 availability, features of the fractional transaction, freedom from hectic banking formalities and so on. Crypto’s international acceptance as a payment gateway is growing day by day as many international businesses are now integrating it as their regular payment services. Moreover, countries in almost every continent are adopting crypto as a transactional solution to take financial power away from the banks and individual’s financial freedom. With its ability to handle high-frequency of transactions, the maximum limit, minimum time delay and distributed ledger for the authentication process, cryptocurrencies can be a superior alternative to mobile banking services like Bkash, Rocket, Nagad etc. if it is implemented in Bangladesh.

Fifthly, cryptocurrency is based on block chain technology. If Bangladesh adopts block chain in quick times, we can achieve an exponential gain in the economy as it will encourage entrepreneurs to create next-generation fin tech projects in sectors like leading platform, oracle solution, decentralized finance, block chain-based web applications etc. These projects will lead to a financial revolution in Bangladesh and eventually provide a worldwide positive recognition for investment and development.

Due to downtrend in the investment rate, the poor performance of the stock market, bank frauds, economic stagnation and unstable investment scenario, Bitcoin of its mind-boggling past track record and immense room of growth in coming years. Alongside, if it is still smaller compare to major financial markets and its finite supply will rise its monarchy value higher. Besides, its convenient features on transactional purposes cannot be undermined. So, the government should look forward to working on a suitable penetration of this emerging financial product in our economic set up to take a great leap forward in the world of globalization.

Author:
Asif Rahman
Asif Rahman
BSS in Development Studies
University of Dhaka

Co-author:
Rufaida Shafiq Aaneela
Rufaida Shafiq Aaneela
BSS in Development Studies
University of Dhaka

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