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Cryptocurrency hedge funds are more profitable. Ethereum-based tokens can be anonymous. Deutsche Bank spoke about its vision for the future.
A study by Eurekahedge, a statistical firm, showed that hedge funds with cryptocurrency assets earned an income of 16.33% in 2019. Their colleagues, who invest in traditional financial instruments, brought investors only 10.4%. This is an industry average that clearly shows the benefits of digital assets to investors. However, the rate of return is in a downtrend. The profit of cryptocurrency hedge funds amounted to 1,708.5% in 2017, and 70.27% in 2018.
Chris Zuehlke, one of the Cumberland Foundation directors, expressed the view that banks and other financial institutions should join the ongoing process and more actively offer cryptocurrency trading through their brokers. Nowadays, credit institutions adhere to an extremely conservative policy.
Steve Kurz, managing director of Galaxy Digital, an investment company, said in his interview with the Financial Times that cryptocurrencies profitability is best disclosed in intervals of 3 to 10 years. Moreover, investors who are prone to a high risk level are most active in this direction. Mike Novogratz, Galaxy Digital founder, is well acquainted with the details of the financial industry, and he was previously a Goldman Sachs partner. The first three quarters of the last year brought his company a profit increase of 133% compared to the same period in 2018.
Mark Yusko, the Director of Morgan Creek Capital, agrees with his colleagues. He claims that every investment fund should invest at least 1% of its funds in cryptocurrency. According to historical data, this could increase the yield of the entire portfolio by at least 20%. At the same time, the expert agreed with the opinion that bitcoin price could drop to zero. However, he admits that the likelihood of such development is much lower than the likelihood of strong growth in the short term.
Ethereum blockchain can significantly increase transaction anonymity. The AZTEC protocol, which uses zero-knowledge proof technology, will help it on this count. It is already running in support mode of the MakerDAO–zkDai stablecoin. ZKP technology allows creating custom tokens on Ethereum blockchain, which movment makes it impossible to track the transaction amount. However, wallet data will remain in common use.
The issue of transactions anonymity on blockchain is one of the most pressing one. A number of cryptocurrencies hide information about users and roaming amounts, which attracts criminal elements and causes sharp discontent of the authorities; and now we are not talking about the anonymity of Ethereum cryptocurrency; the new technology will allow working only with derivative assets.
Thomas Walton-Pocock, the Head of AZTEC, said that his company’s development is based on using PLONK, SNARK’s ultra-fast universal proof. Within two months, the project will reach full capacity, and then each token issuer will be able to use the new technology.
A similar principle is planned to be used in the development of TRON cryptocurrency blockchain. Last December, it was announced that testing of operations based on zk-SNARK began here. Moreover, this project moved even further. It is planned that buyers of tokens will be able to hide not only the transfer amount, but also data about the recipients and senders.
However, the development of AZTEC may be less in demand. Over the next six months, Ethereum blockchain is expected to switch to 2.0 version. It is not yet clear whether the new technology will be compatible with the PoS protocol. The developers have not even decided whether they will support the old version.
Three reports on the picture of the financial world’s future were published by Deutsche Bank analysts. In their opinion, cryptocurrencies in 2022 will become mainstream, plastic cards will remain in the past in the next decade, and fiat money will be able to maintain its leadership. Moreover, the Central banks, which will launch their own digital financial instruments, can start the process. Many countries are ready to launch national cryptocurrencies.
Following the rest, the Central Bank of Japan announced the need to begin work on the creation of state cryptocurrencies. Masayoshi Amamiya, the Deputy Head of this institution, said that in the event of a sharp increase in demand for the use of stablecoins in payments, the country should provide users with the necessary conditions. Therefore, now it is required to conduct research on new technologies.
However, despite the active use of cashless payments, Deutsche Bank experts expect cash to remain in circulation. According to their polls, 69% of respondents trust them much more. The problem may be caused by inflation and the US dollar collapse. In this case, cryptocurrencies with a stable exchange rate will be more preferable.
Analysts believe that plastic cards are threatened by mobile payments and digital payments. Even as we speak, many users prefer to use NFC technology, which is in many smartphones. It is likely that payment wallets will soon be integrated into it, and then the need to use banks services will simply disappear. However, the Deutsche Bank forecast suggests that only 200 million users will use cryptocurrency wallets in 2030.
Now, the problem with cryptocurrencies is their increased volatility. Asset owners prefer to use them as accumulation, using more traditional forms of settlement.