In this article, we’ll explore three questions: Regulations, High volatility, and the potential for economic and political transformation. Will cryptocurrencies become the norm? And, of course, we’ll examine some of the challenges and opportunities associated with this emerging technology. But what are the biggest concerns? And what can investors do to protect themselves from volatility? Will it be that easy?
Investing In Cryptocurrencies
In addition to the rising prices of traditional currencies, cryptocurrency has been gaining popularity among industrial investors looking for shelter from inflation. Several banks have started to offer cryptocurrency services. China is trying to digitize its yuan while cracking down on decentralized cryptocurrencies like bitcoin. Russia is chipping away at its U.S. Dollar dependence by purchasing gold at record levels. In developing countries, cryptocurrency can help stabilize their finances. Its high volatility makes it easy to lose money.
In the crypto market, you can invest in bitcoin coins or buy shares of companies that accept bitcoin. Another option is to buy bitcoin exchange traded funds (ETFs) that copy the price of bitcoin and allow you to invest without buying the actual cryptocurrency. These funds also invest in the blockchain network. One tech platform claims to have the fastest blockchain in the world. Other investment companies are starting to offer bitcoin funds.
Apart from the financial benefits, cryptocurrency has considerable social and political impacts. It can increase financial inclusion, power, privacy, and access to the global marketplace. By investing in cryptocurrency, governments can improve electronic governance and digital society while empowering citizens and reinforcing human rights, the rule of law, and anti-corruption efforts. It will also help to fight the growing number of cybercrimes and frauds.
With so many investors now familiar with cryptocurrency, it is not surprising that the cryptocurrency market has become regulated. Ultimately, if more governments begin to regulate digital currency, it will legitimize the market and increase the value of digital currency. However, some investors worry that regulating cryptocurrency will restrict the peer-to-peer nature of the market and limit individual freedom. Ultimately, it is best to invest small amounts and watch how the market changes in the future.
A bipartisan group of senators recently unveiled sweeping new regulations for the cryptocurrency industry. However, the legislation has already sparked controversy with skeptics who warn that it will go backward and be too crypto-friendly. In addition, cryptocurrency and the blockchain industry are rife with scams and fraud, and state and federal regulations have not always kept up with new technology. Hopefully, lawmakers will take note of the emerging trend and act accordingly.
With the total market capitalization of digital currencies approaching $1.7 trillion and over $90 billion traded daily, the potential for cryptocurrency has grown exponentially. However, analysts warn that the industry is too large and could have macroeconomic implications if it is poorly regulated. To avoid such a scenario, governments must shift away from piecemeal approaches to cryptocurrency regulation and instead focus on a global framework. To that end, President Biden recently signed the Executive Order on Ensuring Responsible Development of Digital Assets (EDDA), which acknowledges the industry’s potential. Further, the Executive Order focuses on exploring the USD’s privacy issues, financial inclusion, and global competitiveness.
Another significant bill provision would require exchanges to record the taxable events that occur when bitcoin is bought or sold. This would include the price when Bitcoin is sold and converted back into U.S. dollars. This would reduce the filing burden for crypto investors. It would also help the IRS track crypto tax evasion. However, the SEC has not stated how it plans to implement the new legislation. Nonetheless, Gensler has said that greater regulation is necessary to prevent the spread of ransomware attacks, including the Colonial Pipeline attack.
In the past few years, cryptocurrency markets have become a haven for millions and even billionaires. Although the technology is still new and has limited use in the mainstream, it has the potential to become a very lucrative investment vehicle. The volatility of cryptocurrencies allows swing traders to trade a digital asset for several days or weeks. This type of investment provides a high level of opportunity for potential home runs.
Although trading cryptocurrencies is a risky endeavor, it can be mitigated by performing research. By setting up a Stop Loss Market Order (SLMO) on your cryptocurrency investments, you can limit the impact of volatility on your portfolio. With the high volatility in cryptocurrencies, it’s vital to understand the risk before investing.
Though cryptocurrency may have more volatility than other markets, its return can compensate for this. Bhardwaj and Khurana agree that cryptocurrencies’ upside outweighs the downside risk. In addition to cryptocurrencies being more volatile than other investments, high volatility is suitable for new investors who want to lean into the volatility and take advantage of the high potential.
Despite the high price fluctuations of cryptocurrencies, it’s hard to predict the future of these investments. Investors are often influenced by regulatory news and geopolitical developments. In 2020, Bitcoin trading soared and seemed to act as a haven asset, a viable alternative to traditional currencies. But the volatility of these currencies is not limited to bitcoin. The market is highly susceptible to news that affects the price of cryptocurrencies, including geopolitical risks and political issues.
Potential For Economic & Political Transformation
When the future currency is crypto-based, it offers a host of benefits. It is decentralized, which means it can help regulate digital business practices, privacy, and tax avoidance. And it allows for collective action, which could liberate society from the tyranny of markets. Collective action can also promote more progressive long-term goals than the policies of a centralized figurehead. It can also monitor and mitigate the worst excesses of state power, independent of its surveillance state apparatus.
As digital money gains acceptance, it could also revolutionize the financial sector. It could open the door to financial services for 1.7 billion people without traditional bank accounts. But while this is promising, it also comes with many downsides. While digital money has many benefits, it could exacerbate the digital divide between countries and weaker citizens, and it could also result in a loss of policy effectiveness.
Governments have begun regulating cryptocurrencies, but the initial lenient approach has forced them to develop rules for the new system. It can take years for regulators to create such practices, but it is essential to remember that the more popular crypto assets become, the more government scrutiny they face. That means they will become more popular, which is the opposite of the premise of the entire system. Consequently, cryptocurrencies may face increasing scrutiny from regulators around the world.
Read More: What Affects the Crypto Market?
Central banks Issue Own Digital Currencies.
The potential for central banks to issue their digital currencies is gaining traction in political and policy circles. The Bank for International Settlements recently published a roundup of critical aspects of digital currencies issued by central banks. One potential application is the ability to regulate and standardize payments through held digital currency. Another could be a digital currency available through mobile devices without a bank account. Such a currency could enhance payment security and transaction finality by using private key cryptography and distributed consensus. It could also advance the public good as it meets central banks’ financial inclusion goals.
With the Federal Reserve’s pending actions, the potential for central banks to issue their digital currency is on the rise. As the guardian of the world’s most common currency, the Federal Reserve is developing a hypothetical digital dollar platform in cooperation with the Massachusetts Institute of Technology. While speed may be critical, getting it right is more important. Earlier this year, the Digital Dollar Project announced that it would launch five private pilot programs to test its digital currency.
China’s potential adoption of central bank digital currencies is significant for two reasons. First, they could be a powerful tool in managing monetary policy and ensuring financial stability. Secondly, they could make it easier for governments to undertake quantitative easing, distributing newly created public money directly to citizens.