We could be at the end of the cryptocurrency era, as we’ve come to know it. Or at least, there’s bound to be a paradigm shift for crypto that involves more than mere speculation.
Over the last year, Bitcoin and its ilk hit new historical highs. Each time, the cruise was always so good it was too easy to factor in any drops. But they inevitably happened anyway.
Institutional buy-in from major corporations was always the missing catalyst for major cryptocurrencies. When it arrived, it came with a bang. Ethereum – history’s second-biggest crypto – also rallied late in 2021.
As the US government pondered new regulations for cryptocurrency, El Salvador and the Central African Republic made headlines by adopting Bitcoin as a second legal tender. More countries mulled following suit.
Then, the unthinkable drop happened.
Crypto is no longer the esoteric topic it once was. As far as many are concerned, this is money, and they need to get it!
With more people interested in it, it’s hard not to see billionaires like Elon Musk and your high school kid talking about crypto with equal enthusiasm. Modern interest in crypto is unprecedented. Yet, the sceptics (like Warren Buffett) remain, and they may have a point.
The crypto industry has barely taken off and is always evolving. That’s a big reason why earth-shattering drops also follow momentous Bitcoin highs.
The deep-thinking investor wants to know if there’s some science to predict the next Bitcoin crash or surge. As it stands, only a short-term view is likely to be precise. So experts continue to focus on regulation and institutional adoption of cryptocurrency payments to feel where the market is going.
This approach seems to pose unique problems. Precise predictions are impossible, but it is possible to improve one’s clout in the crypto market if you do what the experts suggest, instead of speculating blindly.
Regulation is Necessary
The US has taken a particular interest in regulating stablecoins. Legislators are working hard to develop beneficial laws and guidelines to make cryptocurrency safer for ordinary users and less attractive to cybercriminals.
Jeffrey Wang, the Amber Group’s head of the Americas, has described regulation as “probably one of the biggest overhangs” in the global crypto industry. His company is a crypto business working out of Canada.
US Fed chair, Jerome Powell, has signalled a green light to Ethereum and other cryptos, while the SEC’s Gary Gensler has highlighted his agency’s and the Commodity Futures Trading Commission’s role in maintaining order in the industry.
The absence of regulation is more likely to hurt investors. Even the Internal Revenue Service (IRS) is interested in making sure crypto doesn’t become a drainpipe to hide away funds.
Regulation is not a simple switch; there are hurdles to cross. First, there needs to be some sort of harmonisation among agencies and local governments to ensure appropriate oversight of crypto transactions.
Until then, firms and investors will continue to operate without clear guidelines, making it difficult to pinpoint what is moving a cryptocurrency’s value.
Regulatory announcements can impact cryptocurrency price in volatile markets. Market volatility is the main reason experts recommend that crypto investments should make up no more than your total portfolio. You really should not invest what you cannot lose in a market that’s still foggy, even for experts.
Regulation will improve investor confidence, but it’s still a long road ahead until a solid framework is in place.
Last October, investors welcomed the launch of the first Bitcoin ETF on the New York Stock Exchange. As a result, you now have a more conventional way to invest in crypto. With the BITO Bitcoin ETF, you can buy in on cryptocurrency directly from traditional investment brokerages that you may already operate an account with.
There are similar schemes in the equity and bond markets, so doing it with cryptocurrency reinforces the idea that crypto has come to stay, even though many observers believe there’s much work to do beyond the BITO ETF.
The fund is linked to Bitcoin but doesn’t hold the crypto directly. Instead, it holds Bitcoin futures contracts that track the general trends of the actual crypto, and it may not necessarily track the price of Bitcoin directly. That is the kind of ETF that investors prefer.
The first few weeks of BITO trading were impressive, but that doesn’t say much about its potential. More accessible crypto assets are within traditional investment products, allowing more people to buy in and influence the crypto market. In addition, you can use your current retirement brokerage to add crypto to your portfolio.
However, a crypto ETF is still as risky as any crypto investment as it still bears the hallmarks of speculation and volatility. Therefore, in order not to lose money when you purchase crypto from an exchange, it’s advisable not to put it in a crypto fund.
More Institutions Should Adopt Crypto
Multiple significant individuals and businesses have taken an interest in crypto. That’s a good thing, but it’s not enough. AMC, PayPal, and Square are among the companies betting big on crypto payments through their platforms.
Tesla holds billions of dollars in crypto assets but remains unsteady on accepting Bitcoin payments. We can expect more of such buy-in from companies.
Experts anticipate more inflow of attention to drive industry growth for the time being. In addition, major retailers such as Amazon and Walmart adopting crypto will do much to bolster credibility in the industry.
Wider institutional adoption means more use cases for regular users, which will boost crypto prices. Even though markets will move up and down, as crypto gains more uses in the real world, the higher its demand and value.
Therefore, buying it as a store of value will prove beneficial over the long term.
Taking Stock of What’s Left
Matt Damon brought life to the big screen and made millions doing it. “Fortune favours the brave” were his well-delivered words in a Crypto.com ad aired at the Super Bowl. So as cryptocurrency prices maintain their plunge, it’s hard not to imagine asking celebrities to stick to what they really know.
If you’re considering crypto as a path to financial security, you need to consider whether you’re ready for the diverse risks inherent in it. For example, imagine what might happen if El Salvador, where Bitcoin is now legal tender, went into default.
There needs to be a way to ascertain the value of currencies not backed by the state or connected to real goods or assets. Hype alone doesn’t get very far.
If interest rates keep going up, investors will be wise to stay away from more volatile assets such as crypto. Stablecoins such as Terra appeared to hold some promise in hedging the volatility of cryptocurrencies, but the events of the last few weeks do not seem to support such a premise.
The stability of stablecoins depends on two unsustainable models. One of these is a backing reserve, where each digital coin represents a dollar held in the bank. Tether, the most popular stablecoin, uses this model, but exactly how much dollar reserve they have is unknown.
The alternative is to use an algorithmic model like the stablecoin Terra. The premise is that price stability is maintained through a programming code that changes how many coins are available relative to prices moving above and below the dollar peg. Thus, supply and demand only determine the price.
But algorithmic stablecoins have failed to maintain their pegs, only working until there’s some element introduced that ensures they don’t.
Is There Any Hope for Crypto?
It’s tempting to see all that’s happening and call it the end of cryptocurrency. But, this sweeping judgement is faulty. Crypto seems to have won over a critical mass of believers, which could be a more important factor than the current prices.
If anything, it’s now clearer to most investors that crypto is not the hyperloop to financial nirvana. Bitcoin, or any other coin for that matter, may not be the money of the future, and it is less likely to be a hedge against inflation.
However, it can become a significant facet of the existing financial system if proper regulation is in place and investors understand how crypto really works.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only