Video killed the radio star
Do you remember the song ‘video killed the radio star’ from back in the 1980’s?
It’s an old song, but nevertheless a technical development that did play out in the music business some years back as the title would suggest.
The modern-day equivalent to this might be, say, the ‘rise of the machines’ and block chain technology. Like it or not cryptocurrencies’ are here, and whether they should be given the title ‘currency’ is a highly debateable point.
Personally speaking I don’t think they should, simply because the price swings make it very difficult and unstable to accept from any kind of retailers’ perspective. A currency should and has to be a stable form of exchange within itself, otherwise goods for example could be priced in gold.
It’s sheer craziness to barter for goods that have stable prices with something that does not- pure and simple. For that reason, I don’t think cryptos’ should be labelled in this way.
Call them what you like, but don’t call them a currency.
Irrespective of that issue, the move earlier this month by the CME to launch a Bitcoin contract has certainly given that market another boost. For that reason, if you are sat on the fence and you’re thinking of buying some crypto currency before the next price surge, I would suggest reading our crypto expert’s special report first.
The point behind the move is the technology that’s driving the whole rush into this electronic form of wealth, block chain, is evolving to allow payment and settlement on an immediate basis.
This is a development that could revolutionize the entire global payments system and hugely reduce costs over time for the banking and payments industry.
At the same time in the world of FX we see more and more automation too. Robots have already nearly killed off the trader in this business, and give it 10 years and there won’t be any humans involved at all probably.
Will that be progress or not? Hard to say, but it could give rise to less and less currency volatility for sure.
To explain that very simply and succinctly; the use of rapid price exchange via automated algos creates its own liquidity. This is further enhanced the more there are of them as they compete between each other via aggregated price searching that is not necessarily one-dimensional to any one currency pair.
This is fine within a stable price environment and enhanced further as more electronic price provision comes on line.
The exception to that notion is when something significant does happen in the markets: we all know what follows- the market blows a fuse and you get price meltdowns or melt-ups (think of the SNB EURCHF peg removal in 2015, or the GBP flash crash of 2016.)
The reason for this is simple. Extreme price events cause some of the systems to either over load or simply be shut down manually. That’s partly because the price providers simply don’t have any humans left aboard to assume other peoples risk.
When that happens and price liquidity is removed to such an extent, those robots still running have to hit whatever is the next available price, and that can be hundreds of points distant.
This is because once a stop loss order is triggered; the robot in charge has no choice but to fill the order at the next available price. So events like we saw in 2015 and 2016 will reoccur for sure.
Leaving that potential aside, I was joking with some colleagues in the market this morning. I came up with the crazy notion that perhaps CLS (the central clearing system for most wholesale FX transactional volume) might even jump on the bandwagon and think about settling some FX trades in bitcoin instead of cash.
I know that sounds crazy to any sane person, but just think about it for a minute…
If that happens, we might end up with a bunch of semi- redundant robots running in something that doesn’t move very much (most of the time) at that point, settling trades into something that does. Talk about turning things on their head!
Daft as it may seem, as I write this I am just waiting for someone to come up such a hair-brained idea. If they do and the market even thinks about taking it on board at least I can say; ‘you read about it here first!’