Crypto Currency Trade Report: Background, Issues, and Risks

This report provides a comprehensive overview of crypto currency trade, delving into its background, operational mechanisms, and evolution from traditional trade practices. It examines various aspects of crypto currencies, including their advantages, disadvantages, and the challenges posed by government regulations and public perception. The report also investigates the similarities and dissimilarities between crypto currency crises and traditional currency crises, analyzing the factors that influence value fluctuations. Furthermore, it explores the issues surrounding crypto currencies, foreign exchange risks, and the reasons behind governmental restrictions in countries such as Russia, South Korea, China, and India. The report concludes with an assessment of the future of crypto currencies and their potential impact on the global financial landscape, providing valuable insights for those seeking to understand this rapidly evolving field.

Crypto Currency Trade 1
Crypto Currency Trade
By [Name]
Course
Professors’ Name
Institution
Location of Institution
Date

Crypto Currency Trade 2
Letter of Transmittal
Sender’s Address
Receiver’s Address
Dear sir/Madam:
We hereby submit a business report which has explained a literature about the crypto-
currency. The tittle of the report is “Crypto Currency Trade”. The report has talked about a
number of issues including the background of crypto currencies. We hope you will find the
report relevant to the topic.
Your opinion on our report is highly appreciated,
The name of the group,
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Crypto Currency Trade 3
Executive Summary
The report herein has discussed the concept of crypto currencies in three sections
which include the background of crypto currency which has discussed how they were created
and how they work. The study has also looked at the relationship between crypto currencies
crisis and currency crisis. The second part of the report has looked at Similarities and
Dissimilarities of a Crypto-currency crisis with a Currency crisis. The last part of the report
has discussed Crypto-currencies Issues and Foreign Exchange Risk and also looked at
Reasons why Russia, South Korea, China and India want to ban or restrict the use of Crypto-
currencies.
Crypto Currency Trade
Introduction
As the world changed to digital era, in that way, the world of economy also changed
into digital way. According to John (2018, p. 34), the form of trade has changed over the
years form butter trade to trade using currencies. Furthermore, the word has changed
drastically and the digital money know has crypto-currencies have entered the market. Most
of the people in business world do not understand the insight of this currency, the crypto-
currencies. Many governments have even tried to ban the use of crypto-currencies as a form
of trade exchange because they argue that this currency is affecting the world economy
negatively. Many scholars, financial institutions like banks and the governments’ department
of finance have not researched on the topic “crypto-currencies” (Dyhrberg, Foley & Svec,
2018, p. 12). Therefore, many people around the world have little knowledge about the term
crypto-currencies. In that note, the report herein has studied and discussed this phenomenon
of crypto-currencies. The knowledge from this report can help many people understand the
insights of crypto-currencies and can decide to join others in the crypto-currencies business
like Bitcoins.

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1. Background to Crypto-currencies
According to Sayed & Abbas (2018, p. 25) crypto currency is a virtual or digital asset
that was made to work as a medium of trade instead of money and other electronic currencies
offered by banks. The crypto currency verifies and secures business transactions by the use of
cryptography. The cryptography also is used to control and monitor the designing of new
crypto currency units. In the 1990s many people tried to digital currencies because in this
period, the technology was really booming, but they failed. The reasons as to why they failed
included insufficient finance to accomplish the works, the cyber fraud and conflict between
the employees and their bosses. In 2009, a group of programmers under the umbrella of
Satoshi Nakamoto came up with the first digital crypto currency known as the Bitcoins (Ng
& Griffin, 2018, p. 1). Bitcoins was the first successful crypto currency to be created and has
worked perfectly since its launching and has the cap value of $ 50.57 billion as from August
2018 (Nair & Motwani, 2018, pp 2-3).
Other forms of crypto-currency include; one, Litecoin (LTC)- Litecoin was one of the
crypto currencies to follow Bitcoins and has since been known as silver in the world of crypto
currencies while Bitcoin is known as gold of digital currencies. Litecoin was launched in
2011 by a former Google engineer and MIT graduate known as Charlie Lee and has a cap
value of $ 5.89 billion as from August this year (Casey et al., 2018, p. 4). Litecoin can be
similar to Bitecoin is several ways; however, it is faster in confirming payments because of
its faster block generation. Another crypto currency to come into the digital market is Ripple
which was launched in 2012 and has the market cap of $ 19.07 billion as at July 2018 (Nair &
Motwani, 2018, pp 2-3). Ripple is different from other crypto currencies because it does not
use the mining process to confirm payments, rather it uses consensus ledger.

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Another crypto currency is Ethereum which was launched in 2015 is a very secure
decentralised crypto currency system and is better than other crypto currencies because of its
security measures. Ethereum is the second after Bitcoin with the cap value of $ 47.84 billion
and $ 474.84 per token value. The top five crypto currencies, is Monero which was launched
in 2014 (Nair & Motwani, 2018, pp 2-3). Monero has been linked a lot will criminal activities
because it has very high security measures, therefore making it hard for the justice
departments to follow the transactions. Monero has a capital value of $ 2.31 billion according
to the research done by Moran (2018, p. 7) in August 2018.
Crypto currency is a decentralised virtual or digital currency that is encrypted in
which transactions takes place between the peers. However, before any transactions take
place, confirmation of the transferred funds must take place in the public ledger through a
process called mining (Olson & Tomek, 2017, p. 67). Looking at the why crypto currencies
work, they have various advantages which include one, easy access, the general public can
access them easily, second, they have easy and quick payments, third, the transaction fees are
low, forth, they are very secured and private. Their disadvantages include, they are rejected
by many governments, second, people do not have sufficient knowledge about them, it is
difficult to reverse payments and lastly they are hard to understand.
Seetharaman et al. (2017, p. 230) argue that crypto currencies cannot fulfil the
functions of money at this point because many governments have not approved the digital
currencies to be used for business purposes. Caldwell (2018, p. 10) says that the crypto
currencies cannot be used in place of money because many businesses have not adopted the
currencies. However, Li & Wang (2017, p. 50) discussed that in future, the crypto currencies
will take of other forms of currencies because of their numerous advantages, therefore, banks
and other financial institutions should watch out. Caldwell (2018, p. 10) stated that the crypto
currencies will be adopted in the financial markets in large numbers because they are not

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centralised, fats and secure. The quick adoption is evident because some counties have started
to come up with their own crypto currencies which they can regulate. According to the
group’s opinion, the crypto currencies should be used as global because of their secure, faster
and can reduce economic wars globally. In the near future crypto currencies will replace the
multiple currencies of a faster rate until people will be amazed.
2. Similarities/Dissimilarities of a Crypto-currency crisis with a Currency crisis
Crypto-currency as a safe Haven
The Cypriot financial crisis is where the republic of Cyprus faced an economic crisis
in 2012 which happened because the Cypriot bank was exposed to local property companies
that were overleveraged (Shroff & Venkataraman, 2017, p. 34). At that time the government
of Greek had a debt crisis and the government of Cyprus’ bond credit rating was downgraded
by the international agencies involved in credit rating. At that time, the economists
considered investing into crypto currencies as a safe haven because the value of the Cyprus
currencies was shaken and people could not invest in the Cyprus banks again. Caldwell
(2018, p. 10) argues that many people who invested in Bitcoins at that time had huge profits.
In this case, crypto currency is not safe because it has been involved with criminal activities
and most governments are shutting it down. Another reason why crypto currency is not safe
to invest in is because there is another form of electronic business that many people in the
world have gone to known as forex trade as Scerri & Agarwal (2017, p. 37)reported in his
research.
Factors that have led to the rapid increases/decreases in crypto-currency values
The factors that have led to rapid increase or decrease in crypto currencies value can
be classified into internal and external factors. The internal factors include; First, the crypto
currency traders- if the crypto currency traders are highly active, the volatility of the crypto
currency value is affected. The major players in the crypto currency world can decide to

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decrease or increase the value of crypto currency by holding or releasing the cypto currency
units for sell/buy (Pieters, 2017, p. 56). Second, the influence of other crypto currencies over
others- if the value of Bitcoin increases then the other crypto currencies’ values will decrease
and vice versa. The external factors include; one, crypto currency acceptance in the business
world; if the crypto currencies are accepted in the business world, their value increase and the
nationals currencies’ decrease in value and vice versa. Second, the new in the medial can
either increase or decrease the value crypto currencies. If the media post positive news about
crypto currencies the values may increase and if the news is negative the value decreases.
Third, political events also affect the value of crypto currencies positively or negatively. For
example the move by the South Korean government to crack down the crypto currency
business decreased the price of crypto currencies (Marx, 2018, p. 33).
Has the bubble burst for Crypto-currencies?
The crypto currencies have at one time gone down drastically. A good example is a
move by South Korea to stop the crypto currency trade in that country, Abdullah & Nor
(2018, p. 8) reported that that move made Bitcoin to lose 1/3 of its capital value in twenty
four hours. Marx (2018, p. 33) also supported the argument by Abdullah & Nor (2018, p. 8)
and said that in financial filed, to lose a third of the capitation is a huge blow to Bitcoins. The
future of crypto currencies hung in the balance because most governments are fighting there
way inside the business. American government warned over bitcoins because there are no
rules that govern the trade. Abdullah & Nor (2018, p. 8) suggested that due to the fights by
governments and competition from forex, the crypto currencies may bust in future.
Relationship between Crypto-currency Crisis and Currency Crisis
Crypocurrency crisis is where there is drastic decrease in the value of crypto currency
due to political reasons or effects form the information from media. A good example is when
South Korean politics made the government to burn the crypto currency trade in South Korea.

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In other hand a currency crisis is where a country’s currency has reduced in value due to huge
debt or bankruptcy. A good example is the Asian currency crisis in 1997 which started in
Thailand (Light, 2018, p. 220). The crisis was as a result where the Thailand government was
not able to maintain the Thai baht because the government lacked the foreign currency to peg
the United States Dollar. The Thailand currency crisis affected most of the counties in Asia
including Hong Kong, Indonesia, South Korea and China.
The main similarity between the crypto currency crisis and the currency crisis is that
all the currencies decrease in value during the crisis. Another similarity is that both crises can
be caused by the content form media and the political influence. For example, when Trump
visited South Korea, the value of USD increased in forex. The main difference is that the
crypto currency crisis does not affect the economy of any country while the currency crisis
affects world economy a large. For example the Asian currency crisis affected the economy
of a number of countries in Asia.
3. Crypto-currencies Issues and Foreign Exchange Risk
Reasons why Russia, South Korea, China and India want to ban or restrict the use of
Crypto-currencies
A numbers of governments have either wanted to burn or restrict the use of crypto
currencies in their specific jurisdiction because of a number of issues that have aroused due to
the use of the crypto currencies. The Russian government agreed to step in and regulate the
use of crypto currencies in Russia. Due to the following reasons; one, the use of crypto
currencies is not a means of payment in the government of Russia. The Russian constitution
has not acknowledged the use of crypto currencies as a means of trade and as a measure of
value of goods and services in Russia. Berengueres (2018, p. 350) also says the crypto
currencies have been restricted in Russia because they are not defined in the Russia’s Central
Bank Digital Currency (CBDC). The second reason is that the crypto currency transactions

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are not secured by any law in Russia and in event where customers encounter fraud, the
government cannot protect them.
The Indian government of the other hand wants to restrict the use of crypto currency
because they believe that most criminals transact there businesses through the Bitcoins and
other crypto currencies. The country does not recognise the crypto currencies as a medium of
business transactions. The government of South Korea does not even want to restrict the
trade; it has banned the public servants from trading or holding crypto currencies. South
Korea has banned the trade because most of the traders use anonymous bank accounts to
transact illegal businesses thus encouraging criminal activities. On the other hand South
Korea banned the crypto currencies traders not to use anonymous accounts while trading.
According to Thelwall (2017, p. 1), the Chines government banned the use of crypto currency
because they want to become world’s number one economic power. Berengueres (2018, p.
350) argues that China banned use of crypto currencies so they could have enough time to
come up with regulations on Bittocins and other crypto currencies.
Can Governments and Central Banks allow Crypto-Currencies to continue?
Many governments and central bank cannot allow the existence of crypto-currencies
in the financial market because the use of crypto currencies is a threat to the economy of
governments and the central bank businesses. According to Hayes (2017, p. 1308), many
governments argue that the use of crypto currencies is a threat their national security. An
example is India; the government of India do not recognise the use of crypto currencies
because they say that criminals take advantage of anonymity of the crypto currencies
transaction to conduct criminal activities. The Russian government instead has come up with
its own crypto currency which they can regulate to outdo the other crypto-currencies.
ElBahrawy (2017, p. 17) reported that, central banks on other hand are fighting the crypto

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currencies because the customers are now preparing to transact through crypto currencies
rather that the bank.
According to ElBahrawy (2017, p. 17), the use of crypto currency is required to make
the economy stable. The argument can be supported by the Cyprus currency crisis. When the
government was under currency crisis, the Bitcoins came to aid and now turned to Bitcoin to
save their assets. The banks have now come up with strategies as competing measures to
ensure that the crypto currencies have not overtaken them. First, the banks and other financial
institutions have pressurised their governments to take charge of the crypto currency trade.
The move will ensure that both the banks and crypto currencies trade are within one financial
law. The move has worked in Russia second, the banks have increased their services to
ensures that they attract more customers. The services include loans, free opening of bank
accounts and low interest rates.
Advantages and disadvantages of using a widely used Currency such as the
USD for International Transactions compared to using a Crypto-currency
such as Bitcoin
The first advantage of using the US dollar for trade over the Bitcoin is that the USA
dollar is a certified currency of United States of America and it is secured while the Bitcoins
is not certified by any government and it is not secure. In case a fraud scenario has occurred,
the culprit can be found by tracing how the money was paid. The US dollar transactions take
place through banks and other online financial institutions like PayPal which allow for
tracing of payment. In Bitcoin it is very hard to trace the payment because of anonymity
(Schaupp & Festa, 2018, May, p. 78). Another advantage is that a county or person can get
loans in USD while the crypto currencies like Bitcoin do not offer loans. The disadvantage of
using USD is that a county can be sanctioned by the US government because the currency is
controlled by US government. Another disadvantage is that using dollar as an international

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currency forces countries to reduce the value of the currency to be below the dollar and hence
affecting the economy of the world. Bitcoin on the other hand is not owned by anybody
therefore using it cannot affect the value of currencies in the world.
How Cryptocurrency help in mitigating Currency Risk
Currency risk is a situation that arises in the change of one currency that relates with
another in exchange rates business. MNCs at many times are faced with currency risk which
may lead to losses or profits. Crypto-currencies have helped in mitigating this situation in the
following ways; first, through use of stop orders, example, if you buy $ 100 Bitcoin, you can
put a stop order of $100-$25, so that you cannot lose more than $25. Second, Crypto currency
market allows conversion of volatile crypto currencies to an equivalent currency that is flat
(Pieters, 2017, p. 56).
Conclusion
The invention of digital currencies known as crypto currency has threatened the
financial institutions and also threatened the security of various governments. Even though
crypto currencies have many advantages, the governments have retaliated to their threat
making the market volatile. Financial institutions have been also fighting crypto currencies
making some governments illegalise the trade. The study herein has looked at some factors
that affect the crypto currencies and how the financial institutions and governments have
reacted about the trade.

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Reference List
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Crypto-Currency. International Journal of Economics and Finance, 10(9). P. 8
Berengueres, J., (2018). Using an artificial financial market for studying a cryptocurrency
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Caldwell, T., (2018). The miners strike–addressing the crypto-currency threat to enterprise
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Casey, M., Crane, J., Gensler, G., Johnson, S. and Narula, N., (2018). The Impact of
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