Analyzing the Future of Cryptocurrency Amidst Global Cryptocurrency Crash

Although amateur investors feel ruined by the crypto crash, many factors like hyperinflation, war, global uncertainties, and digitization act in favor of cryptocurrency.

Every alternative system has its reasons to emerge and become a model. Cryptocurrencies have also undergone this process since their inception in 2009.

Way back in 2008, a host of factors like the great recession, loss of faith in banks due to the global meltdown, and the stock market crash taking away $7.4 trillion in stock wealth from July 2008 to March 2009 created a background for an alternative financial system. In November 2008, a popular cryptocurrency, Bitcoin, came into existence. According to Investopedia, the first cryptocurrency was eCash, created by David Chaum in 1990.

Cryptocurrency is a decentralized currency; it was an answer to the failing global banking system managed by governments. It is a leading digital currency for shopping, fundraising, and investment.??

Investment shift towards cryptocurrency

In the earlier scenario before 2007, the realty segment was booming, encouraging people to invest in buying homes. So lenders came forward to quench that appetite by approving as many home loans as possible they could do with low-interest rates.

In mid-2004, the federal funds rate was 1.25%. By mid-2006, the interest rate was up by 5.25%. Borrowers could not repay when interest rose, leading to the collapse of banks. In 2008 alone, there were 3.1 million foreclosures .

The key impact we need to understand is property investments' fallibility, and the trust investors had in banks. The consequence was exploring new investment modes that give more assurance with more security features. Here comes the coincidence, the timing of cryptocurrency entering the market.

Since 2010, there has been a steady rise in the bitcoin market , reaching $1 in 2011 from just one cent and crossing the $1000 mark in 2013. In 2017, the price surged to $20K. Finally, in April 2020, the cryptocurrency hit $64,895.

In August 2022, Bitcoin briefly plunged from $22,738 to below $21,500, casting doubt on cryptocurrency as an attractive investment option.

Crypto-controversies

Today, there is heated discussion on cryptocurrency due to its secret nature, where investors can evade their investments from taxes. The government of India finds how certain elements use cryptocurrencies for harmful activities and pitch for a global solution. Indeed, there is a justification for the same.

Cryptocurrency trading can happen without depending on a centralized system like Federal Reserve in the US. However, that is precisely why all the controversy erupts over cryptocurrencies where the government is trying to regulate them and bring them under taxation. ?

On the one hand, several governments are trying to crack down on the anonymity of Bitcoin as crypto currencies are havens for criminals , according to a report by BBC. But on the other hand, the crypto market is set to reach $4.94 billion by 2030, expanding at a CAGR of 12.8% from 2021 to 2030, calling for action to make the trading transparent and taxable.

Factors favoring crypto investment

Digital acceleration: Increasing digitization helps governments track people's financial transactions wherever they are. An influential person in an opposition party can face problems like freezing accounts due to losing access to funds. As popular governments began to feel the pinch, there is a likelihood of acting tough on those with excess wealth, questioning the source of deposits and taxing the massive cash deposits in banks.

Although digitization has eased many's lives, people with excess wealth have their worries. For retail investors, cryptocurrency may not be attractive with its limited financial strength. But those who exert influence in the economy, be it institutional investors or intend to launder their money, are likely to find cryptocurrency as an attractive option to invest in hiding their wealth in a digital world where transactions are traceable. Moreover, uncertainties can egg on millionaire/billionaire investors to strategically invest in cryptocurrency until normalcy is restored.

Less in supply: Bitcoins are less in supply and more in demand; they are less vulnerable to devaluation than paper currencies like Sri Lankan Rupee today and the German Mark in the 1920s.?

Tracking gold is easy: Although gold is an ideal deposit option, physical gold also invites the attention of thieves. Moreover, transporting vast amounts of gold can be risky due to possibilities like law enforcement agencies using metal detectors to detect gold in paste form. Herein comes the relevance of alternative investment options that offer security and anonymity.

Volatile stock market: Any investment worth its salt depends on the security it gives. Stock markets are volatile, and supply chain disruptions due to pandemics created considerable uncertainties in investors' minds. Like other investments, cryptocurrency faces market risks like shares and mutual funds. Yet, the following factors determine the viability of investing in cryptocurrencies.

Hyperinflation: Countries like Sri Lanka are facing unprecedented inflationary pressures. As the nation is facing a forex shortage, it cannot meet the demands for gasoline. As the nation's economy takes time to restore to normalcy, savvy investors may turn to cryptocurrency as a viable option to secure their assets or launder their ill-gotten wealth and be hidden from tax authorities.

War and scarcity: Russia and Ukraine are the biggest suppliers of fossil fuel, wheat, to European nations. War has disrupted this vital supply, at least partly leading to inflationary pressures. This apart, prolonged war could nudge the wealthy to seek alternative options that will give security. Moreover, in times of war, citizen investments are likely seen as national assets as an act of 'patriotism.'?This can be more pronounced in European nations where war can spread or countries come together to fight the belligerent. Hence a precautionary act by the wealthy to transfer their assets into crypto mode.

War taught small nations how to exercise caution by investing in cryptocurrencies to source hardware to fight a battle against a superpower. It helps them source supplies from neighboring countries through crypto payments and hides its financial strength. Even if the banks are bombed, yet the country can wage war through crypto capabilities.?

The hope of State recognition: It is a well-argued topic that government will come forward to recognize cryptocurrencies. According to reports, the Bank of Russia has agreed on the future circulation of cryptocurrencies in Russia. Another report states that the government of India may recognize and regulate crypto. So far, major nations have not accepted crypto as a legal currency. An interesting phenomenon in crypto acceptance is mainly found in democratic countries like the UK, the USA, and Canada . Since all three are robust democracies, there is a likelihood that the trend may pervade other democratic countries.

What if crypto becomes universal?

Suppose more nations begin to accept cryptocurrencies out of conviction or compulsion. In that case, it will have repercussions on currencies like ruble, yuan, dollar, or pound as crypto becomes standard where the hegemony of one currency will erode. Factors like duplication of paper currency through digital printing or corrupt officials colluding with counterfeit currency makers may force the government to opt for cashless payments in the foreseeable future. As cryptocurrency is cashless, secure, permanent, and immutable, thanks to Blockchain technology, it can emerge as an alternative to currency.

Hold on, if cryptocurrency becomes universal, replacing the hegemony of most favored currencies like the dollar, euro, and pound, then Blockchain technology will become the backbone of transactions where hackers could not easily hack it.

Key takeaway

The cryptocurrency market may face a volatile situation like crashes in recent times. But a host of factors like a cashless society, hyperinflation, and war-induced uncertainties make cryptocurrency a viable future investment or mode for transactions where fintech and Blockchain technologies become the backbone. Yes, technology has a way of dealing with the worst uncertainties. So, brace up for a cashless world where businesses and customers feel more secure.

By the SBase Research team

About SBase Technologies Inc.

SBase Technologies is a leading business transformation consultant offering tailored and personalized digital solutions to small and large enterprises. We help firms with Blockchain solutions for their secure digital transactions.?