What Bitcoin taught us last week

The considerable volatility of prices was accentuated by the reactions to the comments (some constructive and others not so much) about a "disruptive technology" that responds to the specific needs of the client, is here to stay and will probably obtain a greater systemic influence, but which is still at an early stage in its maturation process and is subject to localized shocks and sudden government interference.

Perhaps one of the most useful ways to think about bitcoin (and the growing number of other cryptocurrencies) is as an innovation that reduces barriers to entering a payment system outside the direct scope and the auspices of central banks and the most official entities. His admirers and advocates want the phenomenon to assume the key characteristics of a reliable and effective "money", and go beyond what precious metals offer to include the three characteristics of being a means of exchange between peers, a deposit of value and a vehicle for risk coverage and legitimate speculation.

In this context, last week he illustrated the following:

• The considerable gap in the acceptance of cryptocurrencies that still exists today, including warnings that they are nothing more than a passing "fad" or, what is worse, a "fraud".

• The vulnerability of the sector to government actions, including China's decision last week to ban certain offers and its threats to impose stricter regulations.

• The potential for considerable price volatility that, in the course of just three days last week, caused the value of bitcoins to plummet by 40 percent and then rebound more than 25 percent from their lows .

These three elements not only highlight the challenges facing the most optimistic view of cryptocurrencies. They also point out the risk that, although it is difficult to value the currency in a reliable way, part of the impressive rise of this year in the price of bitcoins could be assuming an adoption rate that exceeds what is feasible and desirable in the short term.

It will take time for cryptocurrencies to develop the depth and stability of a dedicated user base that supports the expected growth of their participation in the payment system, as well as their use as vehicles for accumulation and coverage. It will also take time for governments and monetary authorities to understand the full range of costs and benefits of this new platform and establish a consistent regulatory and supervisory approach.

It is equally important to note, however, that this does not imply that bitcoin and other cryptocurrencies will disappear, as some have warned. The most likely interpretation is that we are still at a very early stage of a possible process of currency transformation that is not only limited to the desire of some to have a wider range of credible "money".

Cryptocurrencies, which take advantage of technological innovations that promise greater efficiency and are likely to deepen over time, are also a response to the broader phenomenon of discontent with existing public and private institutions. It is a dynamic that has not only led to disappointments and the erosion of trust, but has also generated a more generalized sense of marginalization and alienation in certain segments of society.

For the time being, the operational dimensions of the cryptocurrencies will mainly involve speculative activities, keeping a small part of the base of precious metals investors and satisfying the demand of those who seek, for legal and illegal reasons, a payment system that operates in the margin. of the sight and scope of the monetary authorities.

As such, we must expect a high and continuous price volatility in a context of persistent and marked differences of opinion about what is coming. In the longer term, a more stable and regulated platform will probably emerge. It will complement, but not replace, the traditional system managed by central banks.