The interest in cryptocurrency has risen exponentially during the pandemic. As people had relatively more time and money to spare, they started exploring crypto trading. Since it is such a new financial asset, there’s a lot of curiosity around it. So much so that it led people into voraciously reading the viral Reddit thread which now has a category called ‘meme stocks’.
When cryptocurrency first came into existence, only a niche audience was familiar with it–often referred to as anti-establishment investors. However, today its popularity has grown manifold and experts predict that the cryptocurrency market is likely to triple its worth by 2030. Expected to grow by almost $5 billion in less than 10 years, it is highly unlikely that brands and investors can continue to disregard the growing importance of cryptocurrencies.
Whether cryptocurrencies need to be regulated or not is something that will become clear in the future. For now, let’s dig deeper and understand the nuances of cryptocurrencies.
Power to the people
Even though there has been a steady rise in the number of people who are actively trading cryptocurrencies, the growth in recent years has been remarkable. Investors are also diversifying their profile and thus, at a time when meme stocks and stimulus checks are trending, crypto trading is more than just a hobby. It is now increasingly being viewed as an asset that can bring significant profits despite the risks involved.
If we draw a parallel with how consumers responded to crypto in 2018 versus how they back it now, the trend is in favour of cryptocurrencies. In fact, cryptocurrencies offer a new platform of investment along with the kind of liberties and freedom that is not common in traditional forms of investments like banking.
What worries the investors!
Given the ever-rising value of cryptocurrencies, traditional institutions and financial bodies are keen on investing in them. To put the weight of these demands into perspective, the U.S Bank has recently created a Bitcoin custody service, the purpose of which is to enable hedge funds to have a stake in cryptocurrencies. Now, this is paradoxical because having a bigger pool of investors implies that digital currencies would also end up operating in a similar fashion to traditional modes of investments.
Here’s how:
- Now that institutional players are pouring funds into the crypto market, the power structure is changing constantly. If you look at why and how cryptocurrencies were created 13 years ago, it was an attempt to bring together users who wanted an alternate and an exclusive financial world. The point was to be able to create an ecosystem where moving money and carrying out transactions is easier as well as more accessible.
- Unlike traditional banks, you don’t need to have an address to trade in crypto; all you need is an internet connection. Cryptocurrency, in principle, relies on the collective actions of everyday users for self-regulation. They keep the ledger of transactions – the blockchain – secure and updated, and the process allows anyone with a computer the ability to mine coins.
- At present, the expected future of cryptocurrency appears to paint a very different picture. Being a crypto enthusiast is no longer about being a tech-savvy individual who likes to mine bitcoins. In fact, individual miners aren’t even the ones who are earning profit. This territory is now dominated by a handful of organizations that pool in their resources to mine bitcoins as it requires a great degree of computing power and electricity. While this makes the process faster, it does little to help individual miners or hobbyists.
- Another example of how institutional investments make the tables turn is Tesla's contribution caused a 20% jump in bitcoin’s price which raised questions about the blockchain’s democracy.
Can you have your cake and eat it too?
It is a fact that governments haven’t exactly been very prompt in creating rules and regulations for cryptocurrencies. While fiat currencies are tracked and moderately closely, cryptocurrencies have spread their wings and network almost on their own. What has so far been a decentralized financial network is likely to come under some regulations soon as even investors are in favour of it. However, the jury is still out on what these regulations should cover and who should be responsible for formulating them.
Regulations in the cryptocurrency marketplace will be helpful in making it legal across geographies. It would also tone down its volatility and prevent fraudulent activities. However, some analysts believe that regulations would be detrimental to the peer-to-peer network, which cryptocurrencies operate in. It would end up taking away the main USP on which the market thrived, that is the freedom that comes when there are no intermediaries overseeing transactions.
The cryptocurrency market has been a profitable one largely due to its volatile nature and the anonymity it offers. With regulations, this is compromised in return for investors’ protection and of course stability. That said, it is also worth mentioning that it is in fact hard to operate a currency that has reached a valuation like cryptocurrencies without any regulation. Therefore, the only solution here is to try and find a neutral ground where all parties operate and flourish harmoniously.
The uncertain way forward
Do cryptocurrencies have a future? If yes, what is that future is something that one needs to wait and watch. Being perceived as a volatile market in terms of prices and also in how the consumers view it, it would be interesting to witness how cryptocurrencies evolve with time. For now, given the lack of clarity in terms of regulations and government policies, it appears as though investors would have to navigate through challenges and paradoxes in order to earn more. So to conclude, if cryptocurrencies have a future, it would be one that is entirely shaped by regulators, financial brands, and governments. One can only expect and hope that adequate, as well as necessary steps, would be taken to educate traders and safeguard all investments.
At present, it is clear that the cryptocurrency market has a lot of unexplored potentials which when explored properly and be a gamechanger.
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References:
https://josheph.substack.com/p/which-cryptocurrency-is-best-to-invest?s=r
https://bitbucket.org/joshephlewis/crypto/wiki/What%20is%20cryptocurrency%20mining%3F
https://www.cryptobite.co/how-to-trade-cryptocurrency/
https://financial-co.tribeplatform.com/general/post/how-does-cryptocurrency-value-move-QMjEKDrVyilL6NQ
