Financial Markets and Institutions: Cryptocurrency (Essay Sample)
1)Please be kind to read below my personal requirement for the essay :
- This essay must be NO less than 1600 words,
-Please write the essay in a very simple and direct way , so when I will receive it I can understand its content , and if needed I can do some edit. If the assignment is too technical or complex, I cannot understand it and I cannot edit it, as I am not an expert in the field.
-Please make the assignment also argumentative , do not just write symbols or calculation, but please explain with words and try to argument end to explain the calculations that have been done, so I can also understand what arethese calculations for and their meaning.
-Please do not use High Technical language otherwise that can make someone suspicious, but please use simple language to describe the topics.
-Please provide my assessment in WORD document and NOT IN PDF.
-Please use reliable references which I can put into the essay and for which I will not be marked down. You can use also a company website, or a reliable and famous financial website as reference, that will make my life easier when I ll need to edit it. ( If you'll put academic references from book, and you do not write then in the way my College wants , then I ll have to edit it, but it will be hard to edit it as I ll probably will not have all information to reference the way they want), so please use company website or financial official website, so I can easily access to them and check them.
-Please write the assignment in the following structure and in the following order : 1) Introduction 2)Body 3) Conclusion 4) References List
- Please be aware that my university portal uses Turnitin for detecting plagiarism so please be very careful when writing things which comes from other sources , as Turnitin will immediately detect them and if it will find some similarity they will make me fail the assignment immediately. That's why I would like the assignment to be quite personal and argumentative.
- Please always use third person for the assignment and never write in the first person.
2 ) Now that you have my personal requirements for the assignment , I will write below the assessment question :
About 10 years ago, financial markets across the globe were in the middle of a thunderstorm: the infamous global financial crisis (GFC). Since then, governments and central banks have not only adopted policies that aimed at bringing their economies back to the pre-crisis level (e.g., quantitative easing programs), but also to decrease the vulnerability of their financial systems. Concomitantly, the aftermath of the GFC has witnessed the emergence of cryptocurrencies, some of which becoming highly popular among investors (e.g., Bitcoin). This then brought to the fore the question of whether these type of financial assets might lead to a situation similar to the one created by the collapse of housing prices in the U.S. and peripheral Europe, and how to better prevent such a pernicious event. The articles that follow shed some light on this discussion:
‘Bitcoin faces regulatory crackdown’,Bank of England warns’,
‘Why unregulated cryptocurrencies could trigger another financial crisis?’
Based on the background above, and theories presented in the subject, write a report addressing the following questions:
1. Identify and briefly discuss the market risks attached to cryptocurrencies and their effect on the value of financial securities and bonds?
2. From a Central Bankers perspective, briefly outline the concerns posed by cryptocurrencies to the financial system in your selected country.
Financial Markets and Institutions
Financial Markets and Institutions
Cryptocurrency is a type of digital currency transferred between users and all transactions confirmed by a public ledger thereafter. It is a decentralized currency system that is not regulated by any governmental organization, including central banks. Subsequently, the transactions are conducted free of charge or at a nominal fee that is mutually beneficial to consumers and retailers. The digital method of payment used in transaction applies a cryptographic algorithm and works to make sure there is a high level of anonymity among users, integrity of payment systems and high levels of security of transactions. Unlike the traditional transaction systems which essentially depend on trust, cryptocurrency mainly depend on cryptographic algorithm to authenticate transactions (Financial Times, 2017). While this system may be seen to disrupt the traditional financial and banking institutions, it has gained substantial traction for the past ten years. The first universally accepted cryptocurrency was created in 2009 by anonymous person called Satoshi Nakamoto. Most corporates have embraced cryptocurrency since the discovery of bitcoin and there are more than 969 cryptocurrencies across the world, representing a total capitalization value of approximately $167 billion (Murphy, 2017).
As indicated above, bitcoin will involve transfer of coins from one user to another without involvement of a third party as an intermediary and peer-reviewed cryptographic algorithms to protect the system. Moreover, unlike traditional modes of transactions that are affected by factors such as inflation, bitcoin is only affected by supply and demand amongst the individuals willing to accept and use this payment method. Although a considerable number of people do not have a full understanding of how cryptocurrency works, banks and governments are now more aware of its benefits and limitations (Financial Times, 2018). While bitcoin and other digital money such as Ripple, Litecoin and Dash have for the last couple of years been highly hyped, it will be crucial for investors and businesses to understand the risks posed by cryptocurrencies. It is important for companies to be cautious about currency exchange mediums that do not involve government and physical goods. One of such mediums is cryptocurrency, which is strictly a digital asset where the records of transactions are kept in public ledger using block-chain technology (Financial Times, 2017). The following paragraphs will mainly focus on the market risks associated with cryptocurrencies and how such risks impact value of financial securities and bonds. In addition, the paper will look at the central bank concerns posed by cryptocurrencies to the financial system of the United States of America.
A significant number of national regulators have issued warnings to investors about the risks surrounding cryptocurrency market, which up to today has not been regulated. It is prone to huge swings in price that may seriously limit its use as the transaction currency and is still illiquid (Murphy, 2017). Even if cryptocurrencies have a number of benefits such as cost-effectiveness, an alternative form of fiat currency, high level of privacy and protection, low restrictions and easy accessibility, they are linked to a number of risks. Some of the risks associated with this medium of currency exchange include cryptocurrency does not qualify to be money because of its high volatility nature. For instance, it is easier to make huge amount of money or lose everything within a very short time. Volatility risk is the product of the volatility of an asset and the time it takes for such an asset to settle. The volatility risk expressio...
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