Cryptocurrency: Balloon or Bubble?
Cryptocurrency has seen a significant boom in their following in recent years, and many might agree that 2021 was the year crypto went mainstream. With a recent turn of events in 2022, the question remains: is the Cryptocurrency trend a balloon or a bubble?
For years, cryptocurrency has been labeled as a “bubble”. This means that the market has seen rapid escalation of market value, particularly in the price of assets. Bubbles tend to see surges in asset prices driven by eager market behavior. Many disagree and classify cryptocurrency as a “balloon” and can sustain the growth the currency has seen.
Big banks like Goldman Sachs have begun playing a role in cryptocurrency. They’ve found it crucial to hire crypto talent as they begin to offer more services backed by Bitcoin. Major companies like Meta, Square, Tesla, and MicroStrategy have also begun to invest in cryptocurrency currency. Even being considered as a strong competitor to gold, cryptocurrency has surpassed expectations of skeptics.
This, however, may not be the case. The debate continues: Can cryptocurrency sustain its growth long-term or is it a bubble ready to pop?
Why is it a “bubble”?
The world of crypto currency is still relatively new, which has led to many questions on the digital coin’s future. One of the biggest arguments that cryptocurrency is a bubble is because of it’s tangibility. Because it is a digital coin, crypto does not have tangible value or utility outside the digital asset ecosystem. It also doesn’t have intrinsic value, leading many to believe that it’s simply a fad waiting to die out.
Another situation that has made cryptocurrencies volatile is its fluctuations in price. The Federal Reserve is raising interest rates this year, driving the question on what the government’s role is in regulation of the digital currency. The U.S. government, Treasury, and the Federal Reserve could potentially damage the reputation of crypto, leading to high inflation that will debase the value of the dollar.
Crypto has undoubtedly gained significant traction in the past few years, meaning there’s more interest from institutional investors. Bringing more attention to the digital fad means that there’s a bigger demand for investment opportunities. Volume has stayed the same – making the circulation of crypto scarcer and more expensive.
With so many changes to the industry and its potential, it’s hard to determine how sustainable cryptocurrency will be.
Why is it a “balloon”?
There’s no doubt crypto is becoming more mainstream. Although volatile, cryptocurrencies have been widely traded, used, and held can help to balloon the crypto future.
Crypto in Countries
More countries are getting into the cryptocurrency market as well. El Salvador is the first country to start accepting Bitcoin as legal tender, the Federal Reserve is studying whether to issue its own digital coin, and wealth managers are encouraging clients to explore crypto assets. Cryptocurrencies are legal in the European Union. In Japan, Bitcoin is legal property. Like Japan, the U.S. can treat cryptocurrencies as a financial asset or property. On May 20, 2021, the U.S. Department of the Treasury announced a proposal that would require taxpayers to report any cryptocurrency transaction of $10,000 and above (since signed into law). How proceeds would be taxed — as capital gains or ordinary income — will depend on how long the taxpayer holds the cryptocurrency.
Sustainability of “Meme coins”
Once internet jokes are now worth close to eleven figures. Crypto coins like Dogecoin and Shiba Inu started as a sort of meme coin in the FinTech world. These questionable investments served no apparent purpose, leading skeptics to believe it was just a fad waiting to die out. Last year, Dogecoin reached more than the total value of shares of Twitter, and Shiba Inu had a market value of $11.5 billion.
Meme coins have proven that risk isn’t enough to deter crypto entrepreneurs from doubling down. Is the market strong enough to sustain this growth?
Where is Crypto Doing Best?
Looking at cryptocurrencies, it’s important to know where the digital asset is doing best to determine its sustainability. Currently, the currency movement is being driven by the youth, with 74% of investors being men who are 25-44 years old. 57% of millennials said they’re willing to be the first to try a technology product.
Only 13% of baby boomers are keen to try technology products first, leading to a slow adoption of cryptocurrencies in older generations. This comes as no surprise, as cryptocurrency is a relatively new technology making it harder for older generations to find interest in the topic.
Another area where crypto is arguably gaining the most popularity is in celebrities. Names like Green Bay Packers’ Aaron Rodgers, Ashton Kutcher, Tony Hawk, Kim Kardashian, and Gwenyth Paltrow are just a few with ties to cryptocurrency. Having household names like these giving public endorsement to crypto has encouraged more people to get involved. Many worry that many celebrities are just using this outlet as a publicity stunt – bringing into question the stability of crypto. The digital currency’s long-term value validates many skeptic’s questions on if crypto is a scam or fad.
Many of these questions and skepticisms have changed the world of cryptocurrency, but is there enough popularity to combat this?
Where do we go from here?
We’re expecting to see more conversation about regulation on cryptocurrency by the United States government. Lawmakers worldwide are wanting to put more regulation in place, making it safer for investors and less of an attraction from cybercriminals. Crypto companies are currently operating with no clear guidelines, so stricter rules in place can make it easier for investors to have confidence in the digital asset. The biggest drawback to crypto regulation is the affect of price in an already volatile market. Despite this, regulations to crypto are inevitable for the future.
Crypto ETF Approval
Crypto Exchange Traded Fund (ETF) allows investors to buy in on cryptocurrency directly from traditional investment brokerages they may already have accounts with, like Fidelity or Vanguard. Although this practice is already being used in Bitcoin ETF, there are expectations that the service will expand to hold Bitcoin directly. Services like BITO are making the world of cryptocurrency a more inclusive society for investors, heavily influencing the crypto market.
Broader Institutional Cryptocurrency Adoption
Mainstream companies have already begun to invest in cryptocurrency, and we’re expecting to see more allow their users buy it on their platforms. As more retailers accept crypto as a form of payment, institutional adoption brings more use-cases for the everyday user – affecting crypto prices. This could mean the likelihood of the increase of crypto demand and value.
Although many skeptics believe that the crypto bubble is soon to pop, many may disagree. The drive from countries, major corporations, and individual investors can create a sustainable ecosystem for the digital asset. Although unknown how new regulations and making crypto more “mainstream” will affect cryptocurrencies, many believe that it will help to grow a thriving market. Ultimately, the fate of crypto will be determined through how serious investors adopt new practices.
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