The Valuation of Bitcoin and Other Blockchain-Based Cryptocurrencies - Pay Careful Heed (From a Legal Perspective)
This series has dedicated since 2015 a fair amount of “column space” to cryptocurrency developments in the commercial and financial marketplaces. See, for example, all of these previous posts. (So, quite a bit of coverage.)
As noted in Bitcoin, Ethereum, and Other Block-Chain Based Cryptocurrencies: A Proactive Risk Management Perspective for participants in the cryptocurrency markets*, sound proactive risk management practices entail remaining continuously up-to-date on the risks and benefits in this arena. For example, blockchain-based financial vehicles are largely unregulated, so they can sometimes resemble a “Wild West” in terms of access, utility, and the participant “bona fides”. Constant vigilance and due diligence, then, is required for both professional and amateur participants alike. And, as seen in the news, a reticence of government regulators to wholeheartedly support cryptocurrencies can increase. See, for example, SEC Chairman Jay Clayton’s public statement, “Statement on Cryptocurrencies and Initial Coin Offerings” and the Bloomberg article, China Escalates Crackdown on Cryptocurrency Trading.
(*For the purposes of this piece, focus will be placed only on lawful commercial users and investors.)
One of the most common concerns in developing financial instruments is valuation volatility. The issue is that pricing can be artificially (or even legitimately) inflated, which inflation can “burst” like a “bubble” when the fundamentals underlying an instrument change. Such has occurred during the 1634-1367 Dutch “Tulip Bubble”, which was driven by the basic economic elements of scarcity and demand. A similar focus has emerged with Bitcoin and other blockchain-based cryptocurrencies.
During the past several months the valuation of cryptocurrencies such as Bitcoin ascended rapidly. See this Wall Street Journal article from November 2017 on that topic. And for a cryptocurrency price comparison source (there are many similar websites), see Coins.live.
And recently valuations have declined. Since December 2017 valuations have declined markedly. Approximately 50% during that period. Is this drop a permanent phenomenon or a pricing or structural “correction”? Has a cryptocurrency “bubble” burst (or begun to burst)?
”...[B]lockchain-based financial vehicles are largely unregulated, so they can sometimes resemble a “Wild West” in terms of access, utility, and the participant “bona fides”.
This series does not predict economic conditions, volatility, or outcomes, or provide any investment advice or suggestions. (That is the bailiwick of properly licensed investment professionals.) But as a legally-oriented proactive risk management resource, this blog can and does suggest that market participants at all levels of sophistication keep the matters addressed above “on their radars” as they decide to enter or depart the cryptocurrency marketplace, manage portfolios, hedge risks, or even use blockchain-based financial instruments at all.
For more information blockchain-based cryptocurrencies please continue to follow this series.
– For more information, call Philip N. Kabler of the Gainesville, FL office of Bogin, Munns & Munns at 352.332.7688, where he practices in the areas of business, banking, real estate, and equine law. He has taught business and real estate law courses at the University of Florida Levin College of Law and Warrington College of Business Administration. And is now the President-Elect of the Eighth Judicial Circuit Bar Association.
NOTICE: The article above is not intended to serve as legal advice, and you should not rely on it as such. It is offered only as general information. You should consult with a duly licensed attorney regarding your Florida legal matter, as every situation is unique. Please know that merely reading this article, subscribing to this blog, or otherwise contacting Bogin, Munns & Munns does not establish an attorney-client relationship with our firm. Should you seek legal representation from Bogin, Munns & Munns, any such representation must first be agreed to by the firm and confirmed in a written agreement.