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Cryptocurrency consultant DigitalX says countries facing US trade sanctions could look to use digital money as an alternative payment platform for international monetary transactions.

DigitalX (ASX:DCC) examined global capital markets in its latest monthly market commentary, touching on trade tension between the United States, China and Europe, as well as the emerging markets currency crisis and ongoing instability in Syria and Iran.

Tim Davies, head of investments at DigitalX, says a currency crisis enveloping emerging nations was largely due to poor fiscal policy and heavy exposure to external debt funding.

“The strengthening US Dollar on global recession fears and a tighter US monetary policy stance is rapidly worsening this situation,” he wrote in the report.

“One possible solution being discussed in nations currently facing US sanctions, such as Venezuela, Argentina, Iran and Turkey, is the possibility of using digital assets as an alternate payment platform for international monetary transactions.”

Venezuela is setting up a national cryptocurrency called the ‘petro’, backed by the state’s oil assets.

Digital asset markets have been hit by high selling of late and haven’t recovered from peaks in December and January.

Bitcoin and Ethereum, the two biggest cryptocurrencies, have both seen heavy falls in the last two weeks.

 

The price of Ethereum (left) and Bitcoin (right) respectively over the past month.

The strong selling pressure is tied to the US Securities Exchange Commission’s decision to reject Bitcoin-based exchange-traded funds, Mr Davies said.

“More rational market commentators see the need for further improvements in the regulatory framework governing the trading of digital assets before significant institutional capital will enter the market,” he said.

“One area that we feel requires more oversight is the use of derivative products offered primarily on Bitcoin through two digital asset exchanges, BitMEX and BitForex.”

DigitalX’s fund fell 11.8 per cent in August, but still outperformed the top 10 cryptocurrency index by 1.2pc. Over the course of this year, DigitalX’s portfolio has lost 30.9pc, 8.9pc less than the top 10 index.