For example, the value of Bitcoin, which exceeded $63,000 in mid-April, has fallen to $35,845 by the second half of June. Price fluctuations are at least partly caused by tweets by Tesla CEO and founder Elon Musk. Initially, he raised the price of the cryptocurrency by announcing that Tesla had purchased a stake of 1.5 billion euros in Bitcoin, but then dropped the price later in May, leaving it at the lowest level it had been in three months. He did this through Twitter again by announcing that Tesla is abandoning its plan to accept Bitcoin as a means of payment and that, in general, the mining of cryptocurrencies is harmful to the environment and that Tesla could therefore sell its position.
But what will become of cryptocurrencies in five or ten years’ time, and how much attention should you be paying to tweets made by Elon Musk and others influencing the market? “Bitcoin’s energy consumption has been a big issue and does not fit Tesla’s or Elon Musk’s mission at all – so it seems the motivation for his tweets was the desire to earn a short-term profit,” said Reimo Hammerberg, the co-founder of blockchain company Ignium and member of the management board at Finance Estonia, thereby stating that long-term investment decisions should not be made based on the posts of an opinion leader.
Founder and CEO of Funderbeam’s crypto-platform Change, Kristjan Kangro, agrees. He thinks that the influence of opinion leaders is rather short-term. “It is natural that the prices of cryptocurrencies are affected by temporary events of the world, just like stocks. Just look at what Cristiano Ronaldo was able to do to the stock of Coca Cola at the European Football Championship,” he said, referring to the Portuguese striker’s decision to remove Coca Cola bottles from in front of him at a press conference which led to the company losing almost $4 billion in value in the span of just one night. At the same time, no one expects this to jeopardise the company’s future.
“Any movement on the market is better than no movement, because it creates opportunities for traders,” Kangro said.
Cryptocurrencies have come to stay
Hammerberg believes that in five to ten years’ time, cryptocurrencies will be the new normal and no one will look at them any differently from any other asset class. “Just as no one today thinks that a security is an entry in a database, or that money is an entry in a bank’s database,” he said. “Cryptocurrencies mean a financial system without borders, as evidenced by the fact that, according to the latest news, large US hedge funds want to invest a tenth of their assets into crypto in the next five years,” said Kangro in support of this opinion.
The expert explained that the blockchain allows for the creation of an open, reliable and accessible database on a larger scale that would eliminate double spending. “This means fewer intermediaries and costs, as well as easier and better access to the securities market, investment opportunities, and payment services among other things.” Hammerberg thinks that the technology behind cryptocurrencies will soon compete with traditional banking. “Different cryptocurrencies will be widely accepted as a means of payment in the future, as a result of which their liquidity will be high and price fluctuations lower,” he predicted.
Kristjan Lepik, an economic expert and a crypto enthusiast, has called the rise in coin prices in recent years an explosion. According to him, it is no longer possible to ignore cryptocurrencies because they simplify so many different processes and make life easier. He cites the NFT (non-fungible token) solution, which is essentially a certificate of ownership, as an example. It could be used in the field of copyright, creating a solution where the author of each work receives a share of profit from the distribution or resale of the work.
This would happen automatically, as property rights are fixed and thus the damage caused by piracy is reduced. “Using the NFT, you know who owns the rights to a work, and some cryptocoins can be moved to the owner’s wallet immediately after a transaction,” explains Lepik. “NFTs are similar to Bitcoin. Both can be programmed, Bitcoin is its basis, NFT uses part of the basis created by Bitcoin (the blockchain). If Bitcoin is a currency, NFT is a product based on it.” This is one way the world of cryptocurrencies will be connected to our everyday life.
Value needs to be understood
But how to choose the cryptocurrency that will help your portfolio? According to Hammerberg, opinion leaders’ tweets are very important in short-term trading, but in the long run, a fundamental analysis should be carried out. “Each specific coin needs to be looked at separately, to see the project involved and what benefits it will bring to the user,” he said. “Each coin represents a specific project. Just as a security is as valuable as the company behind it, the value of each coin is determined by the project it is related with.”
Among other things, experts recommend looking at the team behind a particular coin. “It is also always worth seeing who else supports a particular investment with their own money, for example Change has a group of CNG investors behind it,” Kangro gave an example.
According to Kangro, the selection criteria for a potential cryptocurrency investment depend on the investor’s risk appetite. “You should definitely decide first whether to speculate in the short term or take a long-term position,” he noted. This will determine whether or not and how much attention you should be paying to what Elon Musk and other opinion leaders are saying. “From there on, you should be looking into the basics of each coin – how big the market share is, how and what has historically influenced its price, what technology a particular coin is based on, and so on,” Kangro explained.
Cryptocurrencies with the largest market share
Hammerberg added that it is worth looking at the energy efficiency of a specific coin. “Currently, the volumes of cryptocurrencies are very small compared to the entire financial sector, but if the volumes increase, energy consumption will probably be taxed or otherwise regulated by countries – so the future is with green cryptocurrencies.”
Hammerberg believes that Bitcoin, as the first cryptocurrency application, will always remain special and valuable. “Governments are also moving towards cryptographically expressed money, where money exists only in digital form and is not digitised through a bank deposit,” he noted. “It must also be considered that Bitcoins can be mined in limited quantities, so the shortage also affects the price.” Kangro pointed out that if supply does not meet demand, it will lead to an increase in prices.
Estonia has a lot to win
Considering the bright future awaiting cryptocurrencies, Estonia could also stand to benefit from it with the right moves. “Estonia has the opportunity to be at the forefront of the world in the field of virtual currencies and blockchain, and to show the way in leading innovation in this field – we have all the prerequisites for that,” Hammerberg said.
Estonia has already been referred to as a cradle of cryptocurrencies. “This is likely due to the large number of virtual currency authorisations that have been issued, as well as a large number of ICOs (initial coin offering ed.) issued through Estonia,” Hammerberg explained. “Given the future potential of blockchain technology and that of crypto-assets in the economic and financial sectors, this image is good for us in the long run and could bring a lot of projects and capital to Estonia,” he noted.
At the same time, Hammerberg sees that the current view of Estonia treating virtual currencies and related companies as a significant money laundering risk is dangerous. “I hope this results in prudent risk management, not closure of the market.”
Kangro pointed out that if Estonia wants to be referred to as the cradle of cryptocurrencies, then one of the poorest countries in the world, El Salvador, which recently adopted Bitcoin as a legal currency, could serve as an example for us. “In order to justify or maintain the title of the cradle of cryptocurrencies, we must constantly advance technologically and take innovative steps, and we at Change are working hard to contribute to this in cooperation with the authorities.”
The influence of central banks will not disappear
Despite all of the aforementioned, Hammerberg believes that in addition to the growing importance of cryptocurrencies, the money of the central banks will also remain in use. “Regulators and legislators apply much of the current financial market regulation to various decentralised platforms.” He believes that today’s system will simply be moved to blockchain-based cryptographic platforms. “Ultimately, cryptocurrencies and related platforms are not fully decentralised as they are still under someone’s control,” he explained.
“In the future, as a result of block technology, financial services will be significantly more accessible, which in turn will reduce poverty and increase people’s freedom and give them more choices, while the state will continue to monitor and protect individuals,” Hammerberg concluded.
Price targets are high
People all over the world have a lot of faith in cryptocurrencies. For example, Ark Invest, a hedge fund run by Cathie Wood, believes that the value of Bitcoin could rise to as much as $500,000 in the coming years, despite intermediate fluctuations. She opposes Elon Musk’s tweets stating that the electricity used to mine Bitcoin is harmful to the environment and does not align with Tesla’s principles.
“The use of solar energy to mine cryptocurrencies is gaining momentum,” said Wood to Coindesk. Bitcoin is also analysed by major US banks. JP Morgan also sees growth potential, albeit less than Wood, and gives it a $150,000 price target.
So, it is clear that posts of opinion leaders on social media can have a short-term negative effect on prices, but long-term investors should not let themselves be influenced by all this. Rather, it is important to understand why a currency is acquired and to remain true to its thesis. Estonia should start thinking about how we can get the maximum benefit from the crypto revolution as a country. The key lies in well-targeted regulations that are just enough to mitigate money laundering risks without hindering the market any further to the detriment of the sector.