The soaring prices of crypto-currencies, notably Bitcoin, have been tempting many people wanting to achieve quick gains through investing in digital currencies, especially with the decreasing value of the dollar due to US Federal Reserve decisions to cut US interest rates to support the economy.
The dollar ended 2020 with its largest annual loss since 2017. Bitcoin was trading at about $5,000 per coin in March 2020 when the coronavirus pandemic was first declared, and it has now reached in excess of $40,000.
There are currently more than 18 million Bitcoins available, generated by bitcoin mining, a mathematical system using high-end computers that makes new Bitcoins available through decentralisation.
Bitcoin is a virtual digital currency that has no physical existence, is not backed by tangible assets, and is traded over the Internet. The world’s first digital currency is not issued by any central bank, is not subject to the supervision of any supervisory authority, and is not controlled by any central authority, leading to resistance from many governments around the world to the trading of digital currencies.
Bitcoin was launched in 2008, when it was invented by Satoshi Nakamoto whose true identity is unknown.
It skyrocketed in value by more than 200 per cent throughout 2020, supported by demand from investors attracted to the currency in the hopes of achieving quick gains and that it will become a prevalent payment method throughout the world.
US investment bank JP Morgan issued a report last week saying that the Bitcoin currency had emerged as a competitor to gold and could trade at levels of up to $146,000 if it succeeded in establishing itself as a safe investment asset.
However, the price of Bitcoin has fallen during the last few days, as there has been a wave of selling crypto-currencies to reap early profits, especially after the huge rise in the value of these currencies over recent weeks.
“The problem with crypto-currencies is that they eliminate the government’s role in regulating monetary policies,” said Mohamed Adel, head of point of sales and settlement at e-finance, Egypt’s national developer of digital payments infrastructure.
The digital currencies are traded outside the regulation and monitoring of the government, he added. “This can lead to problems if there are disputes, meaning that no legal action can be taken,” Adel said.
However, he added, the world is moving faster towards digital transformation and cashless societies.
“Digital currencies will sooner or later become an accredited payment method in the move towards cashless and digitised societies, and they will be legalised,” Adel explained, adding that crypto-currencies would likely be regulated by many countries over the next few years, including Egypt.
Article 206 of the Central Bank of Egypt (CBE) draft law prohibits the establishment or operation of platforms issuing or trading crypto-currencies or digital money, or promoting them without first obtaining a licence from the CBE.
The Economic Affairs Committee of Egypt’s parliament discussed a bill submitted by the government to issue a new law regulating the CBE and the banking system last week, agreeing in principle that the bill would be discussed in detail in subsequent meetings.
Tarek Amer, governor of the CBE, said in a press statement that the proposed bill had been reviewed by senior legal experts in Egypt and by international institutions such as the World Bank and the International Monetary Fund (IMF).
Amer said that the draft law was designed to keep up with rapid developments in the field of banking services and payment systems and services, keeping pace with best practices, international norms, and legal systems of similar regulatory authorities, and raising the level of performance and development of Egypt’s banking system to support its competitive capabilities.
Bitcoin is not the only encrypted digital currency that is now circulating, as their number has reached thousands.
On the CoinMarketCap platform alone, about 4,154 crypto-currencies are being traded, with Bitcoin at the top, along with other digital currencies that became famous after the high prices of Bitcoin were known and the inability of some to acquire or trade it.
These additional currencies include Ethereum, Litecoin, Dash, and others.
*A version of this article appears in print in the 14 January, 2021 edition of Al-Ahram Weekly.