I have to be honest with you…

I spent two whole days scouring the web, looking for the best qualitative and quantitative information to supply you with.

And let me tell you, it was not easy to find.

There has been a recent surge of popularity in cryptocurrencies, and along with it comes a plethora of controversy.

Some preach about how cryptos have great potential and are leading the way for an eventual takeover of commonplace fiat currencies.

Others, however, are not as optimistic as their colleagues.

It’s still too early to tell whether or not cryptocurrencies will take over the U.S.’ signature fiat currency.

Here’s what I was able to find out…

Reasons That Support a Crypto Takeover

Before we jump right into cryptocurrencies, let’s take a moment and ask: What exactly is the dollar in your pocket?

Well, physically speaking, it’s a unique blend of cotton and linen.

But it’s also fiat currency printed by the government and is closely regulated by a central agency.

Fiat currency is money that the government designated as legal tender for us to use to pay for goods and services. But since the ’70s, it hasn’t been reinforced by any physical commodity.

President Nixon removed the gold standard for the dollar back in 1971.

The U.S. dollar is its own standard, and we’ve seen firsthand just how fickle it can be.

Some experts say that cryptos represent the future of money.

Many investors use gold or silver to protect against the downfall of the dollar. But in more recent years, some have instead been turning to cryptocurrencies.

Cryptos completely eliminate banks as the middlemen, which gives you the ability to send and receive money without any bank interference.

A TED Talk given by expert Neha Naruka gives a great explanation for this by relating cryptos to the digital transfer of money, like credit cards.

When a credit card is used, or when an online money transfer or purchase is made, no physical bills or coins are exchanged.

Instead, the money is represented digitally as a series of ones and zeroes.

And yet, these digital representations have significant value because huge financial institutions (like credit card companies and banks) back or underwrite that value.

These financial institutions guarantee that the monetary transactions are valid. And, more often than not, they charge an interest fee on top of the principal for their troubles.

As I said earlier, the one difference between credit cards and cryptos is that cryptos completely eliminate the middleman — either the banks or credit card companies.

They represent the true democratization of money.

So, are we ready for the future of money?

As with every new technology, glitches and dangers emerge as it gains wider implementation.

But this is where the future of our money is headed. And hopefully, it’ll be for the good of everyone.

However, cryptocurrencies can be used to hide illegal transactions that benefit criminals and terrorists.

And that’s what leads us to our next section…

Reasons That Support the Dollar Staying Put… For Now

Blockchain tokens, like cryptocurrencies, can be considered more like silver or gold than traditional fiat currencies.

If we believe that blockchain is inherently valuable as a building block for future business models, we should stop thinking of it as simply a currency and instead more as a platform that will change the way all kinds of systems are built.

Blockchain tokens represent the first time that a digital asset is able to exist in one place at one time — securely and with certainty.

By thinking in these terms, it’s feasible that we’ll be able to expand our view of what this technology can do and not just limit it as an alternative currency.

Also, some cryptos should be considered securities rather than currencies — their names being key deceivers in this way.

Just a few days ago, the SEC issued an investigative report stating:

Tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal security laws.

But before you take this to mean that all tokens should be considered securities, the SEC also included the following subtitle within the investigative report:

US Securities Laws May Apply to Offers, Sales, and Trading of Interests in Virtual Organizations.

The key word in that statement is “May.” The SEC is also specifically referring to ICOs (initial coin offerings).

Throughout the rest of the report, the SEC continues to explain how ICOs that offer investments must register with the SEC. However, the organization also points out that certain exemptions may apply.

In some instances, if a token isn’t a security but has actual utility, then the ICO might not have to register with the SEC since it would not be classified as an investment or security.

The SEC has not released details of exactly what the specifications are for ICOs being classified as securities.

The SEC report was also in-line with the self-regulation that has already happened inside the crypto community, and that’s really good news.

Blockchain enthusiast Sami Rusani has this to say about the report:

I think it brings legitimacy to an environment that’s been running a bit too wild lately. While I’m all for decentralization, I feel like this might help limit the amount of fraud being committed in a world that’s too easily manipulated at the moment.

I agree with Rusani.

For now, it seems like there are too many ifs, ands, or buts, and too many hoops to jump through for any blockchain token to completely take over any fiat currency like the dollar.

On the other hand, this is a definite step in the right direction for the cryptocurrency and blockchain community.

Platforms and cryptocurrencies that help host ICOs, like Ethereum, will stabilize and potentially rise in value as projects are forced to become more legitimate.

However, the SEC report doesn’t put all debates to rest.

Many experts still believe cryptos to be illegitimate or altogether imaginary.

One Wall Street analyst stripped down the argument into three simple parameters: safety, liquidity, and return.

These parameters are hallmarks of reserve currencies like the U.S. dollar, the euro, and gold, according to Bank of America Merrill Lynch’s head of global commodities and derivatives research, Francisco Blanch.

Blanch also says that, of the parameters mentioned, safety remains the biggest issue since the absence of a central governing authority not only makes cryptos more vulnerable to chaos but also susceptible to hacking, identity theft, and fraud.

The volatile nature of cryptocurrencies also undermines its credibility.

Bitcoin’s nosedive earlier this month has a lot of people spooked as a possible split could result in multiple unknown outcomes.

A more serious event was averted last week. But investors are now bracing for what is known as a “hard fork,” which may lead to a broken blockchain.

Another factor to take into consideration is the relatively fixed supply of cryptos, like Bitcoin.

This fixed money supply characteristic of Bitcoin is what some argue to be the exact reason why it, and other cryptos, will never be able to take over fiat currencies.

Fluctuations in demand for Bitcoin and its competitors, in the face of a relatively fixed supply, will cause wild swings in price.

A money supply rule that doesn’t respond to shifts in demand ultimately spells disaster, and society isn’t a huge fan of recession and unemployment.

And that makes Bitcoin and other cryptos impractical as money.

The Bottom Line

Some institutions already accept cryptos as viable sources of payment.

But exceptional returns do not make a fiat currency. And for Bitcoin, in particular, the ultimate test will be whether or not banks capitulate and accept it as collateral.

No doubt, cryptos have made some major strides lately.

But they still have a long way to go before they can even become a contender in a dollar takedown.

That’s all for now.

Until next time,

John Peterson
Pro Trader Today