Liquidity Or Leakage: Plumbing Problems With Cryptocurrencies

Liquidity Or Leakage: Plumbing Problems With Cryptocurrencies
Webinar

One of the applications of Smart Ledgers are cryptocurrencies. There are numerous projects building trade systems using this technology with announcements from governments, shipping firms, large IT firms, and the like. Cryptocurrencies often exhibit high price volatility and wide spreads between their buy and sell prices into fiat currencies. In other markets, such high volatility and wide spreads might indicate low liquidity, i.e. it is difficult to turn an asset into cash. Normal price falls do not increase the number of sellers. Price falls should increase the number of buyers. A liquidity hole is where price falls do not bring out buyers; rather price falls generate even more sellers. If cryptocurrencies fail to provide easy liquidity, then they fail as mediums of exchange, one of the principal roles of money. However, there are a number of ways of assembling a cryptocurrency and a number of parameters, such as the timing of trades, the money supply algorithm, and the assembling of blocks, that might be done in better ways to improve liquidity.

The webinar explored tying cryptocurrencies' novel money supply algorithms to traditional economic and financial analysis.

Professor Michael Mainelli, Executive Chairman, Z/Yen Group, remarked, “Liquidity ‘black holes’ and ‘white bubbles’ seem to be a feature of many cryptocurrencies. This research is trying to provide insights on how system parameters and standards might help provide deeper, safer liquidity for consumers.”

AGENDA