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ECB to launch its own digital currency, might eat into Bitcoin’s market share

Disruptive technologies have the potentiality to transform existing technologies in inconceivable ways. Bitcoin and Blockchain Technology represent the kind of technologies that can change the phase of how we know things forever. Blockchain has already picked up applications in numerous fields like financial services, medical services, administration and many other fields that require replacement of conventional databases.

European Central Bank has found another application for cryptocurrencies but this time more aligned to the terms of Fiat currencies. ECB is planning to launch their own Digital Base Money (DBM) is a digital equivalent of banknotes, representing a claim at the central bank. Let’s dive deep into how this currency would work and what this would mean to Bitcoin:

The models for this digital currency system:

Member of the Executive Board of the European Central Bank, Yves Mersch revealed that the they might go ahead with two models for the digital currency: account-based and value-based, both supported by blockchain. For an account-based system, central bank would be directly involved in money transfers between accounts. This wouldn’t require an electronic wallet and the bank could see the whole transaction history.


The value-based DBM design is closer to Bitcoin and is modeled after cash. In this case, the non-banks would have their electronic wallets and the central bank wouldn’t be involved directly. Funds are debited and credited from the electronic wallets creating a traceable transaction history.

What would this move mean to cash:

The reason or motive behind this move was explained as an increasing indirect public demand for a central bank’s digital currency. Mersch stated that as such commercial banks offer various electronic payment methods like credit cards, debit cards, net banking etc. In such cases People may prefer to hold claims on the central bank to avoid the risk that the commercial bank defaults. With the introduction of Blockchain, bringing in this transparency would be far more simpler than anticipated.

As far as cash is concerned, Mersch said that it would co-exist along with the DBM as switching completely to electronic transfers would be difficult.

How would Bitcoin be impacted:

Introduction of ECB’s DBM might have a negative impact on Bitcoin and other cryptocurrencies. Eurozone has been under constant turmoil from last couple of years owing to Greek crisis and lingering after effects of 2008 crisis. Recently Italy added to the pressure by voting bank bail outs. In cases of this Geo-economic crisis, Bitcoin profited with significant fund flows from European commodities. With the introduction of DBM, there is a strong possibility that ECB is shielding their currency from any market impacts. This fund flow would in turn be directed into DBM and Bitcoin might lose out on its share.


However there is another possibility that if Eurozone is losing credibility for investing,people might not even choose DBM for investing and would look for alternatives. How this would exactly pan out, only time will tell.


Why 2017 can turn out to be very positive for Bitcoin

Bitcoin has had a strong start to 2017 with the trend looking strong enough to break the all-time high set in 2013. 2016 has been a positive year for the cryptocurrency with the currency showing an increase of $460 during the year. Most investors have resorted to use this digital asset as a portfolio diversifier and it has proved out to be a winning gamble. Fundamentally this was a well thought out move and it payed off with good dividends. But the question lingering in the minds of many Bitcoin enthusiasts and investors is how these strategies and Bitcoin would fare in 2017.  Let’s look into few reasons why we believe Bitcoin would continue to weather the terrain to outperform assets:

China and the East step up the game:



China has always been a major price and volume driver for Bitcoin. The Yuan trading volumes observed a major uptick towards the year end owing to the Chinese Government’s announcement of imposing capital controls over Bitcoin. While this might happen sometime late this year, people are now actively moving funds out of the country at a very quick pace. This avalanche might last for a good amount of time into 2017.

With Japan abolishing sales tax on Bitcoin, South Korea encouraging Bitcoin and Blockchain accelerators and India’s demonization prompting for a cashless Indian society, the contributing prospects from the east only look stronger.

Eurozone’s loss would be Bitcoin’s gain:


The staggering effect of Brexit this year was evident when the European markets collapsed while Bitcoin soared mid-year to trigger a bull run. This quick transfer of funds into a digital unrelated asset has been the defining aspect of 2016’s Bitcoin Bull Run. In the face of Geo-Political crisis Bitcoin has replaced Gold as the safe hedge. With Eurozone still wobbly with impending debt and banking bail outs, cryptocurrencies seem to be a safer option for investing and hedging.

With Italian banking bail outs, Spain’s growing recession, ongoing crisis in Greece and post effects of Brexit, 2017 would see heavy activity in Bitcoin owing to the European continent.

USA’s growing adoption levels and the Trump factor:


The regulation of cryptocurrencies has been a hot topic in the US senate in 2016 and has seen some implementation in major states. With Trump’s policies aligned with major changes required to accelerate Fintech industry, adoption might reach higher levels in 2017. With thoughtful regulation and strong backing, mainstream adoption looks very viable in USA which would drive prices significantly in 2017.

Summing up, 2017 looks very positive for Bitcoin and Blockchain with the cryptocurrency all set to reach new levels of penetration.

Is Bitcoin an exit option for recession stuck economies?

Right from its inception, Bitcoin’s development has been quick and promising. The world was quick to recognize its disruptive nature and Bitcoin’s adoption became fluid. While the status of Bitcoin as an adaptable universal currency still remains ambiguous, it surely has proven its utility. For economies that have been struggling, people have sought to Bitcoin as an alternate in more occasions than one. Let’s look into the situations where Bitcoin actually did better than just saving face in times of crisis:

Fears of Greece exiting Eurozone or Grexit:

In 2015, Greece was in severe recession and in a debt of nearly 1.5 billion euros to creditors. Defaulting on timely payment of the credit might have resulted in Greece leaving the Eurozone. The fears looming the Grexit prompted people to look for alternative methods to pay for Goods and Services. With the local currency inflating at phenomenal rate, there was a clear uptick in the Bitcoin trading. This was a direct result of people investing in Bitcoin so as to hold value against their currency.

Grexit Pushing prices higher and recently Argentinian policies increasing the volumes of trading

As an alternate to monetary reforms enforced, most cryptocurrency supporters argued that Greece could have opted a digital asset model. That is Government could have used decentralized currency to pay pensioners and Government servants initially. Government assets would back this currency and hence can be repaid later. Though Greece took a different path, it is evident from trading volumes that people took to Bitcoin in the time of crisis.

Argentina and Financial repression:

Argentina has experienced the crippling effects of 2008 housing collapse and continued to feel the jitters even in the next decade. Amid the downward spiral of economic decline, the government announced stringent financial restrictions in 2011. This restricts people from buying foreign currency and to send money overseas. This financial repression made some Argentineans to adopt the cryptocurrency as an escape route from government controls.

A pleasant Government change has lead to revoking of reforms,  accommodating better policies to save the country. While the economy is recovering, there is an increase in volume and number of companies operating with Bitcoin. While Bitcoin has supported people during the repressive phase, let’s see how it would help Argentina to reconstruct its economy.

Brazil and Kenya:

Rising volumes in Brazilian Bitcoin Trading
Rising volumes in Brazilian Bitcoin Trading

Brazil is the world’s largest exporter of soft commodities and it has been in recession for over three years. With its economy weakening, the exporters aren’t getting good value for their exports. Hence they have resorted to payments in bitcoin so as to maintain their value of profits. This resulted in the increased volumes during the harvest period of the soft commodities crop cycle.

Kenya has a high population of unbanked citizens and high micropayment transactions in mobile systems. While Government is tightening its hold on local businesses through tax monitoring, Bitcoin is instrumental in building a regulated system. Major wallets like Bitpesa are actually helping the Government to setup a regulated system. This would allow the businesses to flourish and also be monitored for tax irregularities, if any.

Hence we can see that Bitcoin indeed has been crucial in strengthening or restructuring weak economies in many cases.