While cryptocurrency is still in its infancy, external factors influence the coins’ value. One example is Elon Musk, who drove the cumrocket cryptocurrency up 400% in June 2021 and triggered a 7% dip in bitcoin’s price. This could cause volatility in cryptocurrency prices. According to Diana Biggs, founder of cryptocurrency startup Valour, big companies also influence the value of cryptocurrencies.
Changes In Technology
The rapid rise of cryptocurrencies has forced governments to regulate the new technology. Regulators had initially ignored cryptocurrencies, but the rapid rise of Bitcoin and other cryptocurrencies prompted them to craft rules for the emerging sector. Unfortunately, crafting regulations for new technology can take years. Governments worldwide have differing policies, some welcoming cryptocurrency while others outright ban it. Regulators’ biggest challenge may be finding the best balance between limiting traditional financial risks and encouraging innovation.
A significant advantage of blockchain technology is its ability to enable new business models without any middlemen. This is especially desirable as it fosters security and performance over time. However, some industries will be impacted. Existing blockchain solutions for the financial industry eliminate the need for an intermediary and enable direct transactions between trading partners and continuous asset tracking. This way, disintermediation will make transactions decentralized and remove high transaction costs and centralized risks.
Regulation
The financial services industry has long advocated for greater regulatory clarity for cryptocurrency, but this year’s MIT Fintech Conference saw the administration weigh in with its remarks. While the Biden administration promised to release a comprehensive plan for regulating digital currency and cryptocurrencies, the financial services industry is still wading through many essential questions.
One type of regulation protects investors from falling prices and fraudulent practices. Another regulation involves keeping track of cryptocurrency exchanges to ensure they operate within their respective countries’ laws and regulations.
While the cryptocurrency industry has been decried as a potential death toll, the effects of pending regulations will ultimately be positive in the long run. The FATF’s crypto travel rule, which will affect the crypto industry, is expected to go into effect in June 2019. It will erode financial privacy, but the benefits will outweigh the negatives.
In addition to limiting speculation, more excellent regulatory guidance will help stabilize the crypto market and make it more attractive to long-term investors. Additionally, it may improve the value of digital assets, which will improve the appeal to investors.
While the bitcoin price has experienced wild fluctuations over the past decade, the SEC is still working out how to monitor and classify the industry. While some cryptocurrency advocates argue that regulation is necessary to protect investors, others believe it will stifle competition and create additional barriers for new players. Although SEC Chairman Gary Gensler has argued that current financial rules are appropriate for cryptocurrency, critics point out that some of the regulations have their roots in the 1930s.
Demand
In 2021, experts anticipated that more mainstream companies would start investing in crypto assets, including Amazon, Square, PayPal, and Tesla. While Tesla has gone back and forth on accepting Bitcoin payments, it currently has billions of dollars worth of crypto assets.
The global cryptocurrency market will increase, with the fastest growth expected in the trading segment. The growing acceptance of cryptocurrency as a payment option has led to e-commerce companies accepting them as payment. In Germany, for instance, Burger King recently accepted Bitcoin as payment. Global adoption of virtual currencies will impact cross-border remittances, with more financial institutions directing their attention towards blockchain technology.
Bitcoin and Litecoin are popular digital currencies. While there are no official statistics on the growth of these currencies, they have received a strong following. Further, it is the fastest-growing cryptocurrency market.
In recent years, cryptocurrency has shown its value and increased in price, with Bitcoin currently boasting 14 million coins in circulation. However, until a mainstream population accepts the crypto market, cryptocurrency investors will likely remain speculators. Many investors appear to be relying on perceived value in cryptocurrency, including its decentralized network, technology, and integrity of cryptographic code. The growth potential is undeniable.
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Institutional Investors
The rise of institutional investors in the crypto space has several implications for early-stage investors. For one, they may not want to invest directly in cryptocurrencies due to the high risks involved. However, institutional investors are increasingly interested in investing in high-yielding crypto markets and may be interested in index funds or other index-like crypto vehicles. In addition, institutional investors tend to be cautious as they have a low appetite for risk. Hence, a product that tracks the entire crypto market may be a good fit for them.
Regulations are another reason for the lack of institutional participation in the crypto market. This unregulated nature of the crypto market has turned institutional investors off. Also, there was no infrastructure to facilitate their investment in crypto assets. Therefore, the existing methods were not direct enough for institutional investors to participate.
Aside from institutional investors, the crypto market will benefit from a proliferation of consumer-oriented products. With institutional backing, digital goods will become a more viable option for the crypto community. This is particularly relevant as the crypto community is still in its infancy. The rise of institutional investors will also help advance the crypto community’s ethos. With more consumers and mainstream acceptance of the cryptocurrency market, institutional investors will continue to support the rise of consumer-focused products.
In addition to institutional investors, businesses are also increasingly interested in cryptocurrencies. Branded coins, tokens, and NFTs are popular with consumers and merchants. While there are many barriers to institutional adoption, many business owners cite regulatory uncertainty as their main reason for not accepting crypto. However, more institutional investors flock to the crypto market as regulatory frameworks develop.
