The recent economic slump has caused many investors who were once focused on ushering in the future of finance to pivot towards surviving the present. As a result, there has been a general decrease in overall enthusiasm about cryptocurrencies.
Like nearly all other sectors of the market, cryptocurrencies are experiencing a difficult moment. Bitcoin and Etherium are both down nearly 50% from last year’s record highs, which has led some skeptics to argue that we are about to experience the end of crypto.
The Odey Special Situations Fund declined - 0.3% in November, according to a copy of its monthly investor update, which ValueWalk has been able to review. Following this performance, the $94 million fund has returned - 12.4% year-to-date. It remains 2.16% ahead of its benchmark, the MSCI World Index, for the year. In the November Read More
While this is a minority opinion, even crypto’s most enthusiastic investors agree that now is a time for increased caution.
At the same time, I think that it is also an important juncture at which to think critically about the future of crypto.
Between potential new regulations coming from the Biden administration, more widespread adoption of blockchain technology across a variety of industries, and the possibility of a post-slump boom, there are a variety of factors to consider before making any conclusions about how the crypto space may evolve in the near future.
Risks And Regulations
The recent downturn has been tough on Bitcoin and Etherium, but devastating for many of the smaller players in the space. The sudden drops experienced by stablecoins–coins that are backed by hard assets such as fiat currency, gold, or commodities–shook many investors’ faith in crypto more broadly.
As their name implies, these coins were designed to curb crypto’s volatile tendencies, but it is undeniable that they have not yet succeeded in doing so.
Though not the sole reason, the loss of trust in stablecoins is nonetheless a major inspiration behind the drive to impose more stringent regulations on the crypto market.
Though not yet fully fleshed out, the Biden administration’s proposed cryptocurrency regulations seem to have three major themes: prevention of tax evasion and fraud; protection of stablecoins; and the potential to introduce investment vehicles such as crypto exchange traded funds (ETFs).
Regulations, especially those coming from the government, generally have an ambivalent reception within the crypto community. After all, crypto was created as a decentralized, unregulated alternative to fiat currencies, and many worry that increased regulations will threaten what made crypto unique and important in the first place.
At the same time, however, increased regulation may perform the invaluable function of garnering more public trust in cryptocurrencies, making their use more widespread and accelerating the decentralized financial future that many crypto enthusiasts hope for. We are therefore experiencing a critical juncture in the future of crypto.
Growing The Community
Despite the recent downturn, the trend of businesses across all kinds of industries integrating crypto into their everyday operations continues to be going strong. This is another key trend to keep an eye on, as it, more than any amount of media exposure, is likely to draw more of the public into the crypto space.
While an increasing proportion of people are coming to understand what cryptocurrency is and how it works, many remain unsure how to actually go about acquiring it, while still others do not know how to spend it.
Thanks to a few fintech giants, such as Venmo, PayPal, and Robinhood, now allowing users to buy and sell crypto through their extremely popular apps, we should expect to see crypto use grow more widespread.
As crypto trading on these apps breaks down barriers to entering the crypto world and makes these coins more accessible to consumers, we should expect to see more businesses of all kinds accepting crypto as payment.
A number of major companies have already begun to do so, and I do not think it will be much longer until crypto becomes a regular part of many people’s daily lives.
What’s Next For NFTs?
NFTs are a sister technology to cryptocurrency and, as such, tend to more or less mirror its status in the market. Like crypto, NFT transactions experienced a massive boom in 2021 but have since dropped off sharply.
Some commentators have viewed the recent NFT slump as indicative of a general loss of hype surrounding the technology, arguing that the sudden dropoff in activity marks the end of the market as a whole.
For these commentators, NFTs are a simple trend or fad, one that grew rapidly thanks to a string of high-profile purchases but has since lost its appeal.
However, these claims miss out on a fundamentally important fact about NFTs–that is, that they are a flexible and dynamic technology whose many use cases are only just beginning to be explored.
As more industries come to understand the benefits of self-executing smart contracts and the immutability of record-keeping on the blockchain, I think we are going to see the use of NFTs explode in a much more sustained way than we have seen thus far.
Crypto and NFTs are most certainly here to stay, but, like the rest of the economy, they are currently suffering from a momentary downturn.
While it‘s obviously not advisable to go all-in on crypto during these uncertain times, it’s important to think about how it might fare once the economy as a whole has begun to stabilize.
Given their increasingly widespread adoption and the exciting nature of their use cases, it will be crucial to continue monitoring their performance, as well as to keep a close eye on how new regulations will shape the market going forward.
It’s important to remember that, while the economy periodically slows down, human innovation does not: after all, crypto itself was initially invented as a response to the 2008 recession, and I will not be surprised if similarly exciting innovations in decentralized finance emerge from this current moment.