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Stock Markets

Opinions vary: Crypto crash or fiat fears?

The last few days have been concentrated on the cryptocurrency markets, and there have been some very important market events which have made headlines across the world.

There are really three important matters which have drawn the attention of analysts and reporters, those being the loss of the $1 peg by stablecoins Tether, DEI and Terra; the ongoing lawsuit from the Securities and Exchange Commission (SEC) involving the Ripple payment protocol and affecting the price of its native token XRP, and lastly the market crash which has wiped $2 trillion from the value of the entire cryptocurrency market during the last few days.

What these three major events have served to achieve is to remove focus from the elephant in the room which concerns the global financial economy as a whole, that being the increasing instability of major currencies, particularly the US Dollar and the Euro, both of which are sovereign tender in regions of the world with inflation at a 40-year high.

Not only is inflation at a 40-year high, but the Russian government's decision to associate its oil export settlement with rubles rather than Euro or US Dollar for commercial customers in Europe and the United States has achieved two things; it has made the ruble gain value against both currencies, with the ruble today valued at 63 Rubles per US Dollar, double its value at the beginning of March when it hit 138 on March 9 this year.

Additionally, by associating the settlement of physical delivery for commodities such as oil and gas in Rubles, this immediately makes the Ruble a currency of great interest, whilst detracting from the US Dollar and Euro, both of which have been for many years a de-facto currency for settling all commodities deliveries globally.

Therefore, with swaging inflation which hit 9% in the United Kingdom yesterday making it a 40-year high and resembling the situation in Europe and the United States combined with the most valuable consumable commodity globally having to be settled in Rubles if it is supplied by Russian energy companies - and they account for 40% of the entire natural gas supply to the European Union and 27% of its oil supply- there is clearly volatility in the markets.

The situation that has arisen in the cryptocurrency markets recently has to some extent got some congruity with the fiat market, in that the three aforementioned stablecoins, Tether, DEI and Terra, lost their $1 peg.

It could be argued that the whole point of cryptocurrency as an ideology is to foment a decentralized global financial services ecosystem, and remove dependence on central bank policy and freeing investors and businesses from the economic peaks and troughs which the mainstream system inflicts on the populace from time to time.

Decentralized cryptocurrencies such as Bitcoin and Ethereum are completely independent to any banking system and use a distributed blockchain in order to democratize the financial system for their users. This is one of the reasons for the high value of both of these popular coins.

In a world in which more and more asset classes are becoming tokenized and the blockchain-derived infrastructure for financial transactions such as smart contracts on the Ethereum blockchain, interest in decentralization is growing rapidly and a large number of technology companies are now in place to build on the existing infrastructure.

Therefore, it would appear that having a cryptocurrency that is tied to a fiat currency is somewhat contrary to the purpose and ideology of cryptocurrency as it means there is central bank involvement just as there is with fiat currencies.

The Ripple court case remains ongoing, and whilst the market turned its focus toward that and Ripple prices dropped, Ripple as a company forges on undeterred, and has signed an agreement yesterday with FINCI, which is a cross-border payments system, to use Ripple's XRP native token for cross-border payments.

This is an example of the building out of the decentralized financial ecosystem and is worthy of focus at a time during which the fiat currency world is under tremendous pressure.

Please note that the presented content refers to the Oval group which contains two legal entities: Monecor (London) Limited authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721. Monecor (Europe) Limited authorised and licensed under the Cyprus Securities and Exchange Commission (‘CySEC’) with license number 096/08.