The COVID-19 pandemic has accelerated the acceptance of digital currencies like Bitcoin and the underlying blockchain technologies that power them. And as Bitcoin’s volatility continues – with the currency hitting its lowest point in months this week – investors are bullish, momentum will continue even if the world slowly begins to return to normal.
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The crypto and blockchain industry has attracted nearly $ 12.4 billion in venture capital investments in US-based companies since 2017 and $ 19.4 billion globally, according to the figures from Crunchbase. In fact, data so far for 2021 shows that dollars were almost 3 times higher than in 2020 for both global and US investment. But the industry also faces ongoing opportunities and challenges, including more widespread adoption and new regulatory pressures from governments around the world.
Case in point: Earlier this month, El Salvador became the number one country in the world adopt bitcoin as legal tender. At the same time, Thailand’s Securities and Exchange Commission ordered its stock exchanges to delete parts meme, such as Dogecoin, as well as NFTs, Exchange Tokens and Fan Tokens, claiming that these tokens have “no clear purpose, substance or underlying [value]. “
The Chinese government’s increased efforts to harness the crypto space had the biggest impact on valuations. On Friday, the authorities of the Chinese province of Sichuan, one of the largest mining centers in the country, would have ordered cryptocurrency miners to close their operations,
Cryptocurrency experts say these kinds of polarizing events shine a light on the space.
Here’s a closer look at four factors that are likely to cause big changes in the cryptocurrency space in the years to come.
1) Adoption by the general public
Cryptocurrency startups strive to make the process of using, buying, trading and researching digital currencies easier, increasing consumer awareness and adoption.
Increasingly, the widespread adoption of cryptocurrencies is “insanely important” to the growth of the industry, according to Goren. Yet some of this adoption has come from less serious digital currency applications, including “coins”- assets based on jokes but with no real value other than those attributed to them by social indicators – a phenomenon that also concerns Goren because it reinforces the idea that cryptocurrency is not legitimate.
“Public companies can post quarterly earnings, you can follow the CEO on Twitter and get their thoughts on things,” Goren added. “In crypto, you don’t have these kinds of things to show your legitimacy.”
Meanwhile, Hsuan Lee, CEO of Porto / Blocto, said the adoption of NFTs – non-fungible tokens – is one of the biggest factors that has changed the industry over the past year. Portto is a Taiwan-based company that aims to simplify blockchain for users and developers.
Although NFTs have been around since 2017, they were initially unattractive for typical use, but that all changed when they first became available to retail investors, including when sports organizations got involved in selling digital clips and maps, he said.
“The National Basketball Association doesn’t market itself as a blockchain, but offering collectibles on it attracts fans, ”Lee said in an interview. “With these kinds of apps, even the introduction of a musical NFT would potentially attract existing music fans. With those kinds of people joining the party, it will make crypto more mainstream. “
Muneeb Jan, a cryptocurrency and fintech expert operating in Hong Kong, said the investor base for cryptocurrency is still largely retail investors, while large financial institutions are in the discovery phase. .
Still, new companies are announcing daily that they will accept bitcoin and other cryptocurrencies, and banks are facing demand from crypto investors to get more involved in the space, Jan said.
“Crypto-funds are increasingly seen as an asset class,” he said in an interview. “There aren’t a lot of use cases right now, but they want to jump on the bandwagon. If more large institutional investors come in, there will be price stability, and that will improve legitimacy. “
2) Price volatility
Jan believes that price volatility and the fact that bitcoin as a payment method is not yet entirely viable due to the current inability to process transactions quickly are two of the main obstacles to the downturn in the market. more widespread adoption of cryptocurrency.
Bitcoin has been particularly volatile in recent days. After going above $ 40,000 about a week ago, the currency fell below $ 30,000 this week, recovering to around $ 32,400 on Tuesday afternoon. Over the past year, the price peaked at over $ 60,000 before dropping back to half in late May.
Merely processing transactions is not sustainable long-term use due to the high transaction fees associated with it, even though people wish bitcoin could do it, he added.
“Other cryptocurrencies are not volatile because the community investing in them has come to a consensus on the price,” Jan said.
Lee said price volatility will be made easier by regulation, especially as cryptocurrency is adopted more widely. Price volatility will only be corrected over time, he said.
“It is a very young market and it has attracted attention, which makes the prices volatile,” he added. “It can be dangerous to enter an area without established regulations. Being at an early stage, there is a lot of imagination that one can have for these cryptocurrencies. At the same time, when bad news comes in, it can easily spill over into crypto more than other companies. “
3) Regulatory pressure
The proposed regulations for cryptocurrency have gained momentum since the start of 2021.
Among them: The US Department of the Treasury announced in May that it will demand any transfer valued at $ 10,000 or more must be reported at Tax service as part of the fight against tax evasion.
“I’m happy to see regulations come into effect because it will be good for the industry as a whole,” Lee said. “This will minimize possible scams or malicious use cases and allow everyone to better engage.”
The government is also reviewing possible regulations for cryptocurrency exchanges with an emphasis on investor protection and prevention of market manipulation, as well as financial reporting with respect to crypto exchange accounts. assets and payment service accounts that accept cryptocurrencies.
Goren called a focus on Bitcoin, Etherium and public procurement “a double-edged sword”. All real value is eroded when inflation occurs, but Bitcoin is a decentralized currency, so its value is resistant to inflation.
And the more institutions that participate, the more legitimacy it creates, so regulators are less likely to fight it, he said.
“Most lawmakers know that crypto is not used by criminals, but the people who put it into operation are big financial institutions who clap when they say this is happening,” Goren said.
While he understands why there must be IRS reporting requirements for tax purposes, he disagrees when government regulations don’t consider Bitcoin to be a currency, but then treat it as money. cash.
By treating cryptocurrency as a fixed asset instead, the IRS taxes capital gains, which could have implications for the world of venture capital as well, he added.
Goren said other countries have a bit more clarity, but there is still a misunderstanding in the United States as to how cryptocurrencies should be reported financially, and that won’t change as long as there will be no clear categorization of cryptocurrencies.
4) Beyond Bitcoin
Blockchain Rocketfuel founder Peter Jensen said it will take time for the public to understand and become comfortable with cryptocurrency, just as people had to get used to the idea of online banking and ATM cards before that .
San Francisco-based Jensen’s company processes crypto payments. He believes people are distracted by the volatility of Bitcoin’s price, despite it being only one of around 200 cryptocurrencies.
“We have to take people’s minds away from Bitcoin because who knows if the cryptocurrency will survive,” Jensen said in an interview. “There are a lot of cryptocurrencies pegged to the dollar, which means they don’t have any volatility. If you take them and use them for payment, you benefit. “
Global developments – such as El Salvador adopting cryptocurrency and both Sweden and Dubai issuing their own digital currencies – promises the future of the industry, and Jensen predicts that the United States will eventually issue a digital version of the dollar.
He sees a world where, when you get a job, you will have a choice of whether to receive your paycheck in dollars or in cryptocurrency, and there will be no volatility as these funds will be guaranteed by the US government.
“We believe the United States has an opportunity to be ahead, even as China embraces cryptocurrency faster, as well as those with less efficient banking systems,” Jensen added. “If we don’t stay in front, we’ll be the last. “
Crunchbase Pro queries listed for this article
The query used for this article was “Global cryptocurrency companies”, In which“ Bitcoin ”,“ cryptocurrency ”and“ virtual currency ”were the organizational industry search terms. The data was then separated by changing the location of the head office to “United States”.
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