The financial services world has been glued to dashboards over the past few weeks with everyone on edge as the world most valuable and visible cryptocurrency Bitcoin continued in its classic hockey stick trajectory punctuated by a number of dips from which it recovered. How long it will sustain this bull run is not known, but the value is most definitely fueled by a feeding frenzy of laggard consumers and investors driven by an acute fear of missing out. In regulated markets, there is an illegal play known as #PaintingTheTape. I am of the opinion that once an enduring and advanced trend is spotted, the early adopter opportunity is long gone and the long tail remains one of minimal or zero return on risk or investment taken. Financial education website #Investopedia breaks it down well –
Painting the tape is a form of market manipulation whereby market players attempt to influence the price of a security by buying and/or selling it among themselves so as to create the appearance of substantial trading activity in the security.
Two common objectives among market manipulators of painting the tape are to lure unsuspecting investors into a security, or achieve a high closing price for it. Unusual trading volume in a security may attract investors to it. Cabals of market manipulators who have painted the tape in a security generally expect to make significant profits by offloading their holdings in it – which are usually acquired at much lower prices – to investors unaware of the stock manipulation.
These investors are literally left “holding the bag” once the manipulation ceases and the stock declines steeply in price. High closing activity attempts to create an artificial price for a security by boosting its price substantially at market close, since closing prices are widely reported in the media and are closely watched by investors. Since most portfolios and securities are valued on the basis of their closing prices, manipulators use this tactic to achieve a higher market value for their holdings rather than their intrinsic worth. – https://www.investopedia.com/terms/p/paintingthetape.asp
Devoid of regulation, cryptocurrency can be a hotbed of such moves.
Not to be one to judge, I would much rather break down the true opportunity that the cryptocurrency madness has opened up for us by looking at one of its core ways of work from a different and layman’s perspective that could perhaps bring a better understanding . The process of obtaining this digital gold is called mining; and just like in the physical world where you have to move loads of earth to get to valuable ore, certain mathematical questions have to be solved and verified for which the reward is a digital asset that can then be traded.
The question then holds, what we can apply this to? Where can we make use of the underling blockchain technology to scratch a real itch up and above mining and speculative trading?
The Housing Market
You are most likely a renter, and have probably moved once or twice in your adult life. What was the experience getting your deposit refund from your landlord or agent? In Kenya, the expectation one to two months deposit while in Nigeria the ask is for annual rent. The truth is that you have been subject to delays and fictitious charges that left very little of that deposit not to mention chasing the caretaker, landlord or agent to get paid. A block chain based rental platform would allow for a hold to be placed for example with you bank where the contract has promises to the landlord and or agent without money having to physically move. This would mean that at the end of your tenancy if there is any paint work or restoration to be done, the promises as captured on the contract are run and fulfilled and once maker – checker is done all parties are sorted and settled in a matter of seconds.
The Lending Space
What is your take on giving loans to friends? The cultural way is to say, lend what you are willing to lose, but it is hardly ever that simple. Is there a way to maintain relationships outside the lender-borrower dynamic? What is that request could be packaged under a smart contact that can be delivered via mobile with anonymity of the lender and creditor? With network effects global P2P lending can scale and be hugely profitable while also minimize the risk of bad loans. Linked on one end to a bank or other instrument I can lend Ksh. 100,000 to my friend anonymously or the same amount in dollars to a stranger in Mexico.
While SME’s are the backbone of the economy, large corporate and even governments are the leading cause of their death from financial starvation where payments takes months, sometimes years; yet cash flow is the lifeblood of these enterprises. If Construction Company X with accounts at 4 different banks has subcontracts SME Y, it is possible for the deliverables to be packaged into a smart contract that once verified, the payments are automatically debited from either one or all the connected accounts.
One can design and issue their own cryptocurrency targeted at the myriad of problems where we need to decentralize trust, by pass gatekeepers, red tape and perchance even corruption. For banks, they can imagine themselves to fulfill new roles as the anchors of this new trust networks. At the end of the day, fighting the mighty cash out needs for digital currency to be integrated in ways where its form and function can change based on need but have it still carry the same value.
Proof of work verifiable by independent distributed entities to unlock agreed value is where the game is headed.