Will Crypto Currency Ever Be Stable?

Investors in crypto currency are a brave bunch and are still relatively few. Crypto currency investor reluctance is based on several fears and misgivings, such as:

  1. Extreme volatility
  2. Unknown or unfavorable tax treatment by governments
  3. Tenuous legality imposed by governments
  4. Complex access to, & use of, brokerages for crypto Currency transactions
  5. Complexity & lack of understanding of Blockchain technology
  6. A short history of Blockchain technology & trust in it
Investors in crypto currency are a brave bunch and are still relatively few. Crypto currency investor reluctance is based on several fears and misgivings, such as: Extreme volatility...

TradingSig has in past articles discussed some of these issues. However, the extreme volatility issue has never had a proposed solution – until now. A small group of famous financial innovators and economic experts has offered the development of the very first non-anonymous blockchain-based electronic digital currency, referred to as SAGA. It's currently being created by The Saga Foundation, a Switzerland non-profit. The advisory panel participants have some spectacular qualifications:

  1. Jacob Frenkel, former Governor of Bank of Israel, & Chairman, JP Morgan International
  2. Myron Scholes, economics Nobel laureate
  3. Dan Galai, co-developer of VIX, the leading measure of market volatility
  4. Leo Melamed, chairman emeritus of CME & pioneer in financial futures

Think of SAGA's token as a crypto currency without those things that cause regulators, central bankers, & most people to be nervous – wrenching volatility – an ambiguous notion of value – anonymity. So, how could SAGA possibly work to contain the extremes of cryptos volatility?

To achieve low volatility & notional value SAGA will use some traditional finance methods, such as fractional reserves & deposit reserves. SAGA token will be pegged to the IMF’s Special Drawing Right, an international reserve asset that is a basket of currencies, dominated by the US Dollar & the Euro Dollar. Token’s money supply will be adjusted algorithmically, based on the size of its economy, so that when its economy expands a smart contract will increase token supply. There will also be a “price band” that will act as another check on volatility.

Token holders must complete KYC (Know Your Customer) & AML (Anti Money Laundering) documents under Swiss national law, which will eliminate anonymity. This may seem contrary to some initial cryptos objectives. However, many crypto currency exchanges already have strict customer identification measures, & are under some form of government control. Anonymity is a two-sided coin, and mainstream investors almost always agree to be identified.

It remains to be seen if traditional financial processes will be successful in stabilizing any part of the cryptos market space. We all know that these very same methods have led to crashes, failures, and massive bailouts in the past. 

Will crypto become a safe-haven play?

Crypto currency sector in the passed was labeled by TradingSig as the ‘wild west’ for a good reason; it has displayed an enormous level of volatility. Looking at the Bitcoin chart, we can see that within the last year we saw Bitcoin rise over 1925% from March 2017 to mid-December, then decline 54% from December high to March 2018 level at $8.300 as of this writing.

Bitcoin remains volatile nowadays but has been trading in a tighter and tighter wedge pattern in the last two months, where we should get an idea of which direction it will move.

The more conservative equity markets have not been acting well since the highs in later January of this year, with the S&P500 down over 10% since that high. It's not just trading war fears either; we also saw the Federal Reserve Bank of Atlanta recently lower its growth forecast from over 5% to under 2%. Also, tensions in the Middle East are heating up. All in all, investors have been getting more and more concerned and have been moving their capital out of equities.

On a day where equity markets declined over 2%, we saw Bitcoin up 50%. It is still very early in the crypto currency sector. However, it will be interesting to see if cryptos ultimately become a safe-haven play.

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