CFO Focus: To bitcoin or not to bitcoin…
Understanding digital assets and blockchain will provide credit unions with valuable tools to expand financial services to their communities.
Describing 2020 as “weird” is like saying the distance to the moon is “far.” It does not do it justice. A weird headline that was an attention-grabber in 2020 was the astronomical rise of bitcoin and the overall cryptocurrency market. Bitcoin started 2020 at ~$7,400 and had a market capitalization of ~$134 billion and ended 2020 with a price of ~$29,000 and a market cap of ~$550B. During that time, the overall cryptocurrency market grew from $200 billion to $750 billion. This type of growth conjures up images of the dot-com bubble for many. Furthermore, for Bitcoin, boom and bust cycles are not new. There were “crazy” bull runs in 2017 and 2013, only for the price to come crashing back down.
However, there is something different about this cycle. Corporations, institutional investors and Wall Street firms started adopting or telegraphing plans to get involved in the cryptocurrency market. Even regulatory agencies like the Office of the Comptroller of Currency provided blessings for financial institutions to engage in the growing crypto market. With all this hubbub and a $1.5 trillion market cap, crypto is still confusing to the masses and traditional financial institutions. To understand the potential crypto offers to your financial institution, it is imperative to grasp the basics.
What Is a Cryptocurrency?
To start, what exactly is a cryptocurrency? In simple terms, a cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Most cryptocurrencies are decentralized networks that run on blockchain technology. Blockchain technology is the system of record or ledger for cryptocurrencies and uses a network of disparate computers to keep track of information or transactions.
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