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Describe the impact of crypto currency in the financial market.

Research Questions

Cryptocurrencies is described as digital assets designed to work as medium of exchange that uses the strong cryptography to secure financial transactions and control the additional units and verify the transfer of assets in digital modes. The main topic of this research report is to analysis the impact of crypto currencies over the financial markets. The research report is emphasised on the concept of crypto currency. The ways in which the same is perceived by the market players is well balanced in this report. Moreover, the future of these crypto currencies is also discussed to evaluate the need of cryptocurrencies for the investors for creating value on the investment in financial market. However, with the increased benefits and outcomes related to cryptocurrencies, there are certain terms related to cryptocurrencies that need an understanding. There are several ill-intentioned users who malware in the system securities of the investors and other related systems with a view to earn profit from their investment in cryptocurrencies. The main emphasises of this report is identify the sustainability of the cryptocurrencies in financial market and how investors are perceiving the investment in cryptocurrencies for financial value creation. It is evaluated that the different types of cryptocurrencies available in the market shall also be mentioned. The idea is to get an insight about the bright or dark side regarding the viability of this investment option in the longer run. The main focus of the cryptocurrencies is made on the case study analysis part which emphasises upon the login case of import/export finance, electronic market making, and smart contract solutions powered by block chain .The view point shall be presented from the side of the investors. Nonetheless, financial theories have been analyzed to evaluate the impact of crypto currencies over the financial markets. The basic finance theory is all about the pricing of the asset, the investment procedure, carrying out of profits and losses, and etc. All these shall be discussed in respect of the cryptocurrencies. The main need of the cryptocurrencies in the financial market arises when investors had to face high loss of their investment capital due to the financial collapse and distress in economy.  The undertaken financial theories will be used to interlink the relation of the investment value and risk involved in cryptocurrencies investment.

In this report, various research questions have been designed to identify and evaluate the impact of cryptocurrencies over the financial markets. There are various questions framed in this research report which are given as below.

  1. How cryptocurrencies are linked to the name LongFin Corp.?
  2. What is the economic theory or the rationale behind the introduction of cryptocurrencies?
  3. What is the future of the crypto currencies?
  4. How the basic finance theory is held up by cryptocurrencies and how cryptocurrencies are affecting financial markets?

These all questions will assist in evaluating the impact of crypto currencies over the financial markets and what issues investors might face in its investment decisions. All these questions are going to be answered in a certain manner that shall be described in the later sections. This question is going to answer the research made on the basic concept of crypto currencies (Fry, & Cheah, 2016).

The research methodology is the set of process and methods which is undertaken to gain pertinent data and other reciprocate behaviour of investors for cryptocurrencies investment in financial market. The research methods help in identifying the impact of crypto currencies over the financial markets.  However, selection of the research methods and developed frameworks to gather required imperative information has been dependent upon the subject matter of the researchers (Fanning, & Centers, 2016).  In this research, secondary data collection sources such as journal articles, official gazettes, books and other online web information have been used. The main focus in this research is done by using the secondary data sources and gathering the imperative information from the case study and journal articles. This research focuses on the using the quantitative and qualitative data both to identify and evaluate the impact of crypto currencies over the financial markets. Research methods are accompanied with the data collection techniques which are used to gather the imperative information and how it could be used to evaluate the investor’s choice of action while investing in Cryptocurrencies. However, in this research, secondary data is selected to gather the imperative information from the different sources. It includes uses of journal articles, books; web based online information and official gazettes.  This research significantly assists researchers in conducting the research on impact of cryptocurrencies over the financial markets and determines the sustainability of the cryptocurrencies in future in financial market. However, with the changes in time, cryptocurrencies uses and its beneficial outcomes have been reflecting the positive outcome for the future growth of the company. In addition to this, research philosophy is also undertaken in these researches which present nature of the research, practices, values, belief of the investors in cryptocurrencies. Epistemological and Ontological is also evaluated to determine objectivism and constructivism. This will set hypothesis and assumption adopted in this research to identify the values and impact of cryptocurrencies in financial market and how it is perceived by the investors in value creation investment decision (Ciaian, et al. 2016).  In opposite to this, Interpretivist philosophy of the collected data will reflects subjectivism and investor’s values, belief, perception to reach to the conclusion that cryptocurrencies is the future of the financial market which will be useful option for the investors to create value on their investment. The secondary method is used to gain significant information for the research so that researchers could enrich the data analysis part. The research strategy is also undertaken to complete this research by the researchers. It is accompanied with the inductive, deductive research theories. In case of inductive research theories, researchers will focus on analysing the financial market theories and its relation with the cryptocurrencies. On the other hand, deductive research designing the hypothesis and testing assumption which will assist in creating the investment escalations and issues which might be faced by the investors if they invest their capital in cryptocurrencies in financial market (Dyhrberg, 2016). These methodologies are used to gather the information which could assist in determining the feasibility and sustainability of the cryptocurrencies in financial market.

Methodology

This data analysis part will assist in evaluating the impact of cryptocurrencies over the financial markets and its usage of the strong cryptography to secure financial transactions, control additional units and verifying the transfer of goods and services. However, it will also assist in identifying the risk and currency value which investors would have to confront while investing in cryptocurrencies. Nonetheless, capital budgeting, ratio analysis and du Pont analysis could be used by investors while investing their capital and determining whether the invested capital will create value on the investment or not (Cheah, Mishra, Parhi, and Zhang, 2018). 

Crypto currency is designed as a digital or non-tangible asset. It exists virtually as a medium of exchange. It is called crypto currency because it uses cryptography as a medium of security and to verify transactions (Narayanan, Bonneau, Felten, Miller & Goldfeder, 2016). The history of cryptography leads back to Second World War. However, in the last decade, the first crypto currency introduced was Bitcoin. It was launched back in 2009. The different types of crypto currencies other than Bitcoin are Litecoin, Ethereum, Zcash, Dash, Ripple, Monero, Bitcoin cash, Neo, Cardano, and EOS. These crypto currencies are completely free from any intervention of government (Delmolino, Arnett, Kosba, Miller & Shi, 2016).

The increased outcomes of the Cryptocurrency have been analyzed on the basis of the undertaken case study and investors value creation from this organization. LongFin Corp. is a global FinTech company. It is USA based. The company puts business emphasis on the three segments backed by blockchain technology. These include import/export finance, electronic market making, and smart contract solutions powered by blockchain. As far as crypto currencies are concerned, the company is much discussed due to the acquisition of Ziddu.com. This is a blockchain based company. The main catch of this business has been the microfinance lending in the form on Ziddu coins (Gandal & Halaburda, 2014). As soon as this news got viral, the company’s stock prices enjoyed a high boost. After this acquisition, it is expected that the importers and exporters shall be able to covert these Ziddu coins into the different crypto currencies, broadly the Ethereum and Bitcoins. The introduction of the crypto currencies is welcomed by the company as a successful revolution (Fry & Cheah, 2016). This has shown that the cryptocurrencies in financial market are very much viable and it may result to value destruction of the investors if they do not take into accounts the possible associated factors.

The way financial markets shall behave is changed by this transaction. The sudden boost has shocked the whole market.

There are certain terms related to cryptocurrencies that need an understanding. The term token used in crypto currencies can be treated as money only on fulfilment of certain requirements. These relate to the durability, portability, recognisability, scarcity, and the ability to be divisible into lesser denominations. There is no central government but that control the crypto currency supply. The main rationale behind these crypto currencies is the idea of decentralisation. Over 1000 kinds of cryptocurrencies are currently in operation (Johan & Pant, 2018).  After analysing the case studies and events like Looking previous trend and what happened during the 1990, during the dot-com bubble, it is found that investors should undertake the possible ways of the digital market and internet to create value on their investment.

Data Analysis

The main idea behind the introduction of these crypto currencies is to eliminate hacking of private information.  This will not only eliminate the issue of the insider trading but also keep the investment amount of the investors away from the economic factors as well. Cryptography is being used to make the transactions done in a secure and anonymous manner. Cryptocurrencies are introduced firstly in form of Bitcoins by Satoshi Nakamoto. He defined them as an electronic cash system that is peer to peer. This is invented out of the trust if people that failed on the third party based systems. Hence the need of server is eliminated in the transactions relating to crypto currencies. The whole balances and payments are via a network between the parties of transaction (Srokosz, and Kopciaski, 2015). Crypto currencies have basically got their name from the technology behind their processing, known as cryptography (Partanen, 2018).  It is analyzed that cryptocurrencies in financial market have been gaining momentum due to its increased value creation and profit driven capacity for the investors (Gandal, & Halaburda, 2016). The major change in the Cryptocurrencies and creation of the invested values arise when the price of the coins are changed and varied due to the certain factors. The increased investment trend in the Cryptocurrencies has become the trend and many small companies are indulged in doing their main busienss of creating portfolio of the Cryptocurrencies.

There are dual views over the future prospect that the cryptocurrencies are to offer. There are certain people who believe that this concept is just like a trend. It is trending today and is gaining a lot of boom from everywhere. It is analyzed that financial market also known as the stock market where trading of securities likes shares, bonds, debentures, mutual funds take place (Pieters, G. and Vivanco, S., 2017). This is an investment of one's portion of income with company which in exchange gives the person return on investment in form of interest and dividend. Nonetheless, with the changes in time, and introduction of advance technologies, the concept of investment in scriptures shall also phase out and get out-dated.  The main reason is that the financial capital market is just like the stock market, and hence there is no certainty attached. Just an artificial pressure is generated over the investors (Wang & Schneider, 2018).  Even in the presence of thoughts like above, some people have a faith in the brightness of the future of cryptocurrencies. There are several investors who have created value on their investment after investing capital in cryptocurrencies in financial market.  Lot predictions are being made to identify the value creation opportunities and risk involved in the cryptocurrencies in financial market. It is believed that the most support will be gained by the crypto currencies from the institutional investors. As of now, there are no government regulations over the crypto currency market (Ciaian, Rajcaniova, and Kancs, 2016). There is no such intervention of the government on this cryptocurrencies in financial market which reflects the true and fair view of is values in market. Nonetheless, the changes in the cryptocurrencies in financial market are based on its demand and supply in market which is highly based on the investors (Li, and Wang, 2017).  However, it is believed that the governments are all set to intervene and control these decentralised transactions. This has added a lot fuel in the market. Due to proper regulations lined up in the air for cryptocurrencies, the investors have generated a confidence to invest into them (Singh & Davidson, 2018).  All the views kept aside, the crypto currencies being a medium of exchange are undoubtedly bound to have inbuilt volatile nature. Even though it is aired to get the crypto currency market regulated, which shall certainly reduce volatility, but yet cannot bring it down to zero. Nonetheless, cryptocurrency a complete digitalized, virtual currency came into the role known as Bitcoin. Cryptocurrency is acknowledged worldwide which certainly lead to smooth working in the transactions. However everything has their pros and cons differing from situation to situation. Therefore, it could be analyzed that if investors face less security issues and measures while investing in Cryptocurrency in financial market then it will divulge bright future for the sustainability of the Cryptocurrency in market (Dyhrberg, 2016). Nonetheless, it will keep the financial market one step ahead for the investment purpose and will bring complete level of digitalization for the investment purpose (Fry, and Cheah, 2016).  The Initial Coin Offerings and its mechanism have also positively impacted and increased value of these Initial Coin Offerings will create value on the invested capital.  The general market outlook with regards to the crypto currency reflects the positive gesture of the investors for the sustainable future of cryptocurrency.

The basic finance theory that a rational investor follows is buying an asset when it’s going to get him the most profitable returns in real terms and not just in his own opinion. It means that the pricing of currency is a major aspect here (Wong, Saerback, and Delgado Silva, 2018). However, in case of cryptocurrencies, every investor is thinking it to have a golden future in terms of expected returns. The demand has slightly overpriced these currencies and has led to the investors buying the currencies at a higher price. The basic finance theory is being followed by the cryptocurrencies in their working, but the boosts they have experienced have eliminated the thought process of the investors (Asplund & Ivarsson, 2018).  It is analyzed that many countries are facing issue of the financial distress and recessions which have resulted to negative downfall of the currency value of the particular economy on international level. There are several financial theories such as cost based analysis theory, capital budgeting theory, stakeholders theory and EVM theory which could be used by investors to determine whether investing capital in cryptocurrencies in financial market will be beneficial for them or not. Nonetheless, due to its no-physical appurtenance in market, investors are facing risk of transparency and cyber security crime. The different economies have different currencies, to maintain a worldwide single accepted currency, cryptocurrency make into the picture back in 2009 as Bitcoin which was an electronic form of currency and had no physical or tangible existence. The subsequent were the merits and demerits faced by the financial institutions and the investor (people), investing in the cryptocurrency (Gandal, and Halaburda, 2016). The cryptocurrency served as a help with regards to saving the costing which the organization had to pay for paper used for keeping the records of the securities and the owners. The records were kept under security so that the information maintained the privacy of the organization. The currency being in the digital form assists the investors in trading of the securities at any point of time as it requires transactions to be performed online. But the previous merit can sometimes change into demerits when there is disturbance in the internet services or the mobile phones and delay or not being able of perform some urgent transactions may occur. Maintain every transaction online saves the time of both the organization and the investor as they can operate there transactions along with other works too and do not have to go the broker like in the traditional form to wait for the information. The company who are fraud, they can also now not fool the investors with the duplicate currency notes. Although the financial market enjoys many advantages of the cryptocurrency both for the organization and the investors yet the government still does not approve the use of the cryptocurrency in the market. The main reason behind this is that the digital platform hinders the security and privacy, the corrupted money can be easily transacted into the market and the market value of the security is very unpredictable and faces the ups and downs on the daily basis.  This will eliminate the security issues and strengthen the transparency in the financial market for the investors to create value on their investment. The investors have to be very careful about the amount invested in the financial market so that they do not have to face a huge risk. As far as the finance markets are concerned, the introduction of this exchange system has brought a total blast. As discussed, the investors are facing an artificial pressure. The stock market is also being affected. Only the news of entering the cryptocurrency business has boosted the stock price of certain corporations. The speculative nature of the financial markets is well exploited by this technology (Cocco, Concas & Marchesi, 2017). However, it will result to decrease in the insider trading cases but also increase the overall outcomes and efficiency in long run.  It could be inferred that by using the financial theories and practices, investors could easily assess the values and associated return which would be created by the investors after investing in cryptocurrency. In the example of Chanticleer, there consideration of operating number of Hooters franchises and how they initiate the reward program by offering cryptocurrency to its employees was analyzed.  Nonetheless, the undertaken the cryptocurrency offered to employees divulges the whole thing sounds very promising regarding the value and utility of the cryptocurrency and its increased outcomes towards aligning the interest of the Organizaiton with the stakeholder’s growth.

Conclusion

The introduction of cryptocurrencies has disordered the whole financial market. The changing pattern of the human life resulted in change in many other factors in the financial market as well. This research report has fascinated this concept and the press releases of the corporations intended to use these currencies only is boosting up their stock performance. A bubble is flowing in the air of financial markets which might be negative indicator for the future growth and sustainability of company in long run. Every person has atleast heard the name of Bitcoins even while not having any knowledge of it. It is the latest trend trending in the investors nowadays. However, the crux is not limited to this. A lot of problems are there related to this concept as Lack of clarity is persistent among people till date have been faced which might put negative impact on the financial market. Nonetheless, with the adoption of Crypto currency, investors might face security and data privacy issues in their investment decisions. There is basic finance theories are being followed by the crypto currencies in their working, but by establishing the linkage between the return on capital employed and cost of capital, investors could easily create value on the investment. The above content highlights the impact of the crypto currency on the financial market. It is concluded that the income of the people should be invested with the high return and less risky investment projects. Perhaps, investing in Cryptocurrency may increase the overall capital value but digitalization although brings the advantage of accessing the transaction at any time, place and 365 days in the year but yet sharing personal details on the internet is not secure as there always exists a chance of hacking. Investing a huge amount online where the market value of the currency fluctuates on daily basis turns out to be a great risky factor. Yet keeping the crypto currency assists in maintaining the worldwide accepted medium of transfer of the money in the financial market. Now in the end, it could be inferred that cryptocurrencies in financial market has bright future and will give good amount of return to investors. All the investors who are inclined towards the innovation are more eager to invest their capital in Cryptocurrency projects in spite of the risk and data security issues involved.

References

Asplund, J., & Ivarsson, F. (2018). What drives the price development of cryptocurrencies? An empirical study of the cryptocurrency market. Economic Interaction and Coordination, 22(1), 55-65.

Cheah, E.T., Mishra, T., Parhi, M. and Zhang, Z., 2018. Long memory interdependency and inefficiency in Bitcoin markets. Economics Letters, 168(29), pp.18-25.

Ciaian, P., Rajcaniova, M., & Kancs, D. A. (2016). The economics of BitCoin price formation. Applied Economics, 48(19), 1799-1815.

Cocco, L., Concas, G., & Marchesi, M. (2017). Using an artificial financial market for studying a cryptocurrency market. Journal of Economic Interaction and Coordination, 12(2), 345-365.

Delmolino, K., Arnett, M., Kosba, A., Miller, A., & Shi, E. (2016, February). Step by step towards creating a safe smart contract: Lessons and insights from a cryptocurrency lab. In International Conference on Financial Cryptography and Data Security 27,(4)., 33-52.Springer, Berlin, Heidelberg.

Dyhrberg, A. H. (2016). Hedging capabilities of bitcoin. Is it the virtual gold?. Finance Research Letters, 16, 139-144.

Fanning, K., & Centers, D. P. (2016). Blockchain and its coming impact on financial services. Journal of Corporate Accounting & Finance, 27(5), 53-57.

Fry, J., & Cheah, E. T. (2016). Negative bubbles and shocks in cryptocurrency markets. International Review of Financial Analysis, 38(9), 343-352.

Gandal, N. & Halaburda, H., (2016). Can we predict the winner in a market with network effects? Competition in cryptocurrency market. Games, 7(3), p.16.

Gandal, N. and Halaburda, H., 2016. Can we predict the winner in a market with network effects? Competition in cryptocurrency market. Games, 7(3), p.16.

Hansen, P.R. & Lunde, A., (2015). A forecast comparison of volatility models: does anything beat a GARCH (1, 1)?. Journal of applied econometrics, 20(7), pp.873-889.

Johan, S., & Pant, A. (2018). Regulation of the Crypto-Economy: Securitization of the Digital Security. Journal of financial analysis 77,(5)., 343-352.

Li, X. and Wang, C.A., 2017. The technology and economic determinants of cryptocurrency exchange rates: The case of Bitcoin. Decision Support Systems, 95, pp.49-60.

Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and cryptocurrency technologies: a comprehensive introduction. Princeton University Press.

Partanen, C. (2018). The viability of cryptocurrency in relation to the response of financial institutions and governments. Journal of financial analysis 44,(5)., 43-62.

Pieters, G. and Vivanco, S., 2017. Financial regulations and price inconsistencies across Bitcoin markets. Information Economics and Policy, 48(19), pp.1-14.

Singh, D. J., & Davidson, J. (2018). Bitcoins and Cryptocurrency-Scam, Bubble or Currency of the Future? (Vol. 5). Mendon Cottage Books.

Srokosz, W. and Kopciaski, T., 2015. Legal and Economic Analysis of the Crypto Currencies Impact on The Financial System Stability. Journal of Teaching and Education, 4(2), pp.619-627.

Wang, X., & Schneider, H. (2018). Using analytics to gain insights into the cryptocurrency market. Journal of financial analysis 25 (1)., 73-82.

Wong, W.S., Saerback, D. and Delgado Silva, D., 2018. Cryptocurrency: A New Investment Opportunity? An Investigation of the Hedging Capability of Cryptocurrencies and Their Influence on Stock, Bond and Gold Portfolios. 48(19),22-24

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