Cryptocurrencies: Are They The New Derivatives?

As the digital market blossoms, cryptocurrencies might take off in the same way that derivatives did about 41 years ago when regulators expressed dislike for them. 

Oki Matsumoto, the Chief Executive of Monex Group Inc, who spent 12 years at Goldman Sachs, pointed out that regulators disliked derivatives so much in the 1980s. However, they embraced them soon after, a situation that mirrors what cryptos are facing today. Sooner or later, Matsumoto insists that the regulatory framework will be fixed.”

Matsumoto is the head of the Japanese Wall Street financial company, Monex Group, which he co-founded with Sony Corp. Later on, in 2018, Monex acquired Coincheck, a rival exchange, to grow operations in Japan and beyond. 

Tracing the Derivatives’ Path 

Matsumoto is upbeat that Japan will remain an important hub in the fast-evolving blockchain and crypto industry. In 2021, more than three million Japanese had active crypto accounts. The country also has a notable NFT market and a highly advanced crypto market, which is surging in popularity. 

The Japanese market is also responding promptly and embracing blockchain and cryptos. In February 2022, Mitsubishi UFJ Bank, the largest bank by assets, reported it is going to issue a blockchain-based stablecoin. The Bank of Japan is also pursuing its own central bank digital currency (CBDC), which is expected to align with the country’s digital yen.

Now, Matsumoto is drawing a parallel between the lack of understanding/ complexities of cryptos and the early misunderstanding of derivatives. For example, it took time, about five years for derivatives to start getting taught in schools. Cryptos also took almost the same time after hitting the market in 2009, and they are now taught in some colleges, from the University of California Berkeley, USA, to the University of Zurich in Switzerland. 

While roadblocks, such as high taxes on cryptos and looming regulations in different countries, are slowing retail investors from jumping right in at once, Matsumoto indicates that there is a huge prospect for growth in the future. 

On Wednesday, 4th May 2020, the price of Bitcoin rose 8.9% over the previous 24 hours to surpass the USD 40,000 mark but shrank to USD 35,642 the next day following the Federal Reserve move to raise the interest rate by 0.5% to slow down the rising inflation. 

Matsumoto posits that cryptocurrencies are likely to emerge as some of the best derivatives.

Disclaimer: Investing in cryptos and other crypto-related assets is highly risky and speculative, and this post is not a recommendation to invest in cryptos or related assets. Since every individual’s situation is unique, it is in his/her best interest to carry out their own research and consult a qualified professional before taking a decision. 

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