The cryptocurrency industry has a lot of potential, notwithstanding recent downturns.
The cryptocurrency sector has remained divisive but significant in the views of corporations, the public, and governments for the previous few years. But after its massive collapse in May 2022, the crypto market has largely faded from the public’s view. Cryptocurrencies, despite recent trends in market price and public opinion, offer clear advantages including greater financial inclusion and improved security, despite flaws in their current form. Cryptocurrencies will be able to secure their due place in the future of our economy through government regulation and increased public acceptance.
2009 saw the launch of Bitcoin, the first decentralized cryptocurrency in the world. Blockchain technology and cutting-edge advancements in digital technology were used to launch a new market that was led by Bitcoin, heralding a new era in finance and money. The cryptocurrency market seems to be rising in 2019 and beyond. Even if there were ups and downs, the outlook for the cryptocurrency industry appeared to be mainly good. The cryptocurrency industry experienced an exponential growth in popularity throughout 2020 and 2021 as it sailed past a number of landmarks: El Salvador became the first country to accept Bitcoin as legal cash, the market value of all cryptocurrencies reached an astounding $3 trillion, and new innovations like the metaverse, an immersive virtual reality environment, and decentralized exchanges were created.
However, this year saw a significant decline in the prospects for cryptocurrencies. Leading cryptocurrencies had a sharp decline in value beginning in January. In November 2021, the market price of bitcoin reached a staggering peak of over $67,000. Since then, it has been hovering around $20,000 per coin. In line with Bitcoin’s decline, Ether, the primary cryptocurrency of the well-known decentralized blockchain technology Ethereum, fell from over $4,700 in November to just over $1,000 today. Of course, the demise of TerraUSD, a widely used algorithmic stablecoin that was tethered to the dollar, cannot be completely ruled out. Massive losses were incurred by investors around the world; El Salvador lost more than $60 million on their Bitcoin bet, aggravating its already deteriorating economic development and expanding deficit.
Even while cryptocurrencies are cutting-edge and futuristic, the meltdown served as a timely reminder that they are still very volatile. It is undeniable that cryptocurrencies are more generally accepted today. Just two instances are central banks debating the virtues of central bank digital currencies and universities and major corporations accepting cryptocurrencies as a means of payment. Yet cryptocurrencies continue to struggle with the image of being risky investments. This impression was confirmed when the price of Luna, the stabilizing equivalent of TerraUSD that earlier this year had a market capitalization of over $40 billion, dropped to almost nothing as a result of algorithmic failure.
However, cryptocurrencies must still be the way of the future since they provide far too many advantages. Cryptocurrencies provide greater financial inclusion and accessibility by avoiding banks and other centralized financial bodies. Anyone with a device may quickly create a bitcoin wallet without an ID or high credit scores. The blockchain’s decentralized structure makes cryptocurrencies more secure and private. Another advantage is that transaction expenses are lower. Banks may charge a large fee for wire transfers, but utilizing cryptocurrency, you may send money across the globe in a matter of seconds for a much smaller fee.
More than ever, cryptocurrencies must be accepted by regular customers as official means of exchange. How should it be carried out? Governments should, for one, regulate the cryptocurrency industry. In addition to limiting catastrophic failures like the collapse of Terra, regulations demonstrate to the public that the government recognizes the potential of cryptocurrencies in our society. While regulation may hamper innovation in a field as dynamic as cryptocurrency, it will also safeguard investors and foster trust. Regulating crypto would give it the tacit support of the state, which is sorely needed to change its reputation for being unpredictable.
A crucial step that will also be crucial for ensuring the future of cryptocurrency is the issuing of central bank digital currencies by all of the world’s central banks. CBDCs are a country’s currency in digital form. CBDCs offer many of the same advantages as cryptocurrencies, such as promoting financial inclusion, reducing transaction costs, and digitalizing the economy, despite the fact that cryptocurrencies tend to be decentralized whereas CBDCs are centrally managed. The Federal Reserve is still hesitant to accept digital currency due to the concerns of financial instability and the diminished effectiveness of monetary policy, despite increased interest in CBDCs. Although their worries are valid, policymakers in the country must recognize that issuing CBDCs will not only modernize and optimize the country’s economy but also serve as a safety net.
Cryptocurrencies are the wave of the future, notwithstanding the market’s bumps this year. But government regulation is more important than ever. By receiving government endorsement, cryptocurrencies will become institutionalized. This approach will be solidified by governments’ adoption and use of digital currency in the cryptosphere. The crypto ecosystem will emerge from the shadows, lifting a cloud of instability and risk as people start to notice cryptocurrency influencing the traditional economy.
