The global crypto disaster: Is it the end or a new beginning?

The global crypto disaster: Is it the end or a new beginning?

  • Cryptocurrency, volatility and its risks.
  • What is the long-term viability of crypto, including the impact of decentralized finance (DeFi).
  • Are Central Bank Digital Currencies (CBDCs) evidence that crypto is here to stay?

Since the introduction of the first cryptocurrency transactions and digital tokens in the 1990s after their democratization in the 2010s, the current crisis in the cryptocurrency market is unprecedented.

In late 2020, Bitcoin took a huge plunge from which it has yet to recover. This precipitous fall is being discussed and the concern of some «stable dogs,» who were meant to be so unpredictable.

This is exacerbated by the decline of single-visible cryptocurrencies, especially after being accused of fraud, as in the FTX controversy. Among the leading trading platforms, FTX ranks third as it served a population of one million at the peak of its career.

Its consequence had a significant impact on investors, and this, according to experts, would certainly limit the rate of adoption of crypto assets in the coming seasons.

The volatility clock is ticking

Tokens are one type of crypto asset that can be exchanged for digital currency (ie cryptocurrencies like Bitcoin and Ethereum). Security tokens are used to invest in a company through trading assistance bots such as bitcoin bankgive the holder a stake in that company, but utility tokens are exchanged for access to a finished good or service once they are created.

Unlike other cryptocurrencies, stable money is backed by something other than a digital ledger of transactions, such as the US dollar, a commodity like gold, or an investment vehicle like a bank deposit (eg a stock or bond).

The daily news is littered with articles about the decline of Bitcoin. Although this is not the first time its value has fallen, it is the biggest loss since the end of 2020, so it deserves special attention.

Investors fled these riskier investments when interest rates rose, contributing to the crash. Bitcoin may be on the right track, but it has a long way to go before it reaches its former glory.

The recent media attention that cryptocurrencies have received has made many people fear their long-term viability. The unregulated markets of these markets are notorious for their high levels of volatility and are often linked to speculation.

In fact, the BBC reported a 30% increase in bitcoin laundering in 2021. Investors lost more than $1 billion worth of cryptocurrency to scamming schemes in 2021, according to the US Federal Trade Commission, whose job it is to protect consumers . Not surprisingly, those who lost money due to fraud received little return on their investments.

Crypto acting as the trading lifeline for a billion users

Still, business use of cryptocurrencies is growing, albeit slowly. Many publicly traded corporations, including Starbucks and McDonald’s, have begun accepting Bitcoin as payment, according to specialists studying the implications of this trend for corporate social responsibility.

This is especially true in places like El Salvador since Bitcoin is recognized as legal tender there.

Although Japan is not actively pursuing the adoption of Bitcoin as a currency, some companies, including Japanese e-commerce behemoth Rakuten, have decided to accept cryptocurrencies instead.

They claim to be motivated by the need to expand the range of payment methods available to their customers.

The number of people using cryptocurrency increases every year. Exchange platform, for example, predicted that by the end of 2021, more than 295 million users would participate in the cryptocurrency market. As of December 2022, one billion users were expected on the platform.

Additionally, those whose traditional banking options are unreliable or uncertain can use cryptocurrencies to access a decentralized financial system. Among the justifications, the Governor of El Salvador offered to recognize Bitcoin as legal cash and to provide an alternative banking system to the country’s less well-off citizens.

Crypto to see sporty oscillations

Several factors influence the long-term viability of cryptocurrencies, including the growing interest in decentralized finance (DeFi) and the maturation of the metaverse. Stablecoins are often used to run decentralized financial systems.

Similarly, the metaverse, a collection of interconnected 3D simulated realities, accepts cryptocurrency payments for goods and services.

Despite the recent crisis in the crypto asset market, industry experts are convinced that decentralized finance will survive, especially in the form of products backed by cryptocurrencies. This is due to the existence of the market and the presence of competition.

In addition, they believe that although the recent upstream collapse of cryptocurrency-related markets has put off some participants, this is actually a positive development.

These participants argue that a significant decline in the value of crypto asset markets is not only inevitable but also beneficial as it will help restore market balance.

The silver lining: Crypto is the dark horse

Another piece of evidence that digital currencies are here to stay is the introduction of coins by central banks in the form of blockchain and digital currencies (CBDCs). The Bank of Canada is, in fact, developing plans to establish a CBDC.

If CBDCs were to be issued by the Bank of Canada, they would be «official digital money (that) would keep their dollar value in Canadian dollars since they are authorized by the Bank of Canada, just like bank notes,» the institution claims.

The Bahamian Sand Dollar and the Nigerian Naira are just two examples of countries that have produced similar currencies (eNaira). CBDCs differ from privately produced digital currencies (such as Bitcoin or Ethereum) in that they are not designed for speculation or prediction but for use in everyday commerce. In terms of utility, they are on par with cash.

Apart from making fiscal and monetary policies easier to implement in the issuing countries, another goal of CBDCs is to increase financial inclusion among those who do not have access to the conventional banking system.

Cryptocurrency is here to stay thanks to developments in the field of digital currencies both in the metaverse and the arrival of the CBDC.

Because of their resilience, the physical manifestations of crypto assets will change over time according to the underlying technology that enables them (primarily blockchain) and the cyclical fluctuations in demand from end users and/or financial backers.

The post The global crypto crisis: Is it the end or just a new beginning? appeared first on CoinJournal.

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