Following a recent explosion in the popularity of cryptocurrency, many are wondering what’s in its future. To establish a clear picture of where crypto is going, we must understand where it’s been and who’s getting on board.
Strengths of Crypto
No Middle Man: One of the great strengths of cryptocurrency is that you do not need a middleman for online financial transactions due to innovative blockchain technology, unlike real dollars. People can trade directly without banks and governments reaching their fingers into the pile.
The Big Players: Larger companies like Amazon, Tesla, Twitter, and more are buying in and making waves as opportunities to use cryptocurrency on goods increase. As a result, buy-in and crypto value will likely increase.
Stock Market Acceptance: As of October 19, 2022, Bitcoin is an available stock to buy, sell, and trade through the New York Stock Exchange.
Greater Regulations are foreseeable, regulations bent on making the crypto market more stable to protect investors. The risk is too high without some oversight. The US government is also looking at taxing crypto in order to monitor its transactions for accurate tax filings.
Problems with Crypto
Volatility: Extreme fluctuations in value make crypto a potentially dangerous investment, especially in the short term. In 2021 alone, Bitcoin, the most popular cryptocurrency, dropped in value to less than $30,000 in the summer and rose above $65,000 by the end of the year. That said, crypto will most likely increase in value in the long term given the current trend, numerous credible companies investing, and the general spike in popularity.
No Inherent Value: Most investors are merely buying crypto as a store of long-term value, but not actually spending it as the tremendous increase in value over time. This may or may not change but highlights one of the risks of cryptocurrency, as it separates the inherent value of a currency from its literal use, unlike gold and other tangible money.
Difficult To Use: Transactions using Bitcoin are often slow and expensive, as crypto is still a new market with relatively little infrastructure to back it.
Bans & Limits: Some countries have reacted to this risk. China, for instance, has banned crypto. Fortunately, the United States Federal Reserve Chair has expressed she does not intend to ban crypto. Still, governmental restrictions will likely be increasing in the United States and countries around the world.
Conclusion
Engulfed in tremendous complexity, crypto continues to be highly risky and speculative, so financial advisors encourage investors to avoid throwing all their financial eggs in the crypto basket and to be willing to lose the money they put in.
While crypto will likely never be completely free of governments’ regulations, high-end investors continue to back it up despite fluctuations. And while crypto is a young industry with much less stability than tangible money, it has great potential for more widespread use.