As regulation of cryptocurrencies rises, investors’ faith in them will rise, too.
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It's less than a decade in, and cryptocurrency has already made a statement in the financial sector. Seemingly out of nowhere, this currency has managed to get people's attention and, often, their admiration. And it's already affecting some aspects of the general public's lives, including entrepreneurship.
Adopting cryptocurrency and its underlying blockchain technology to work with already existing systems, of course, has posed challenges. A recent example occurred when the technology infrastructure company Stripe took a stab at incorporating a bitcoin payment option. Unfortunately, the result wasn't a success.
It turned out that the speed in processing bitcoin transactions turned off clients. In a blog post this past January, Stripe's project manager, Tom Karlo, said his company's customers rejected the cryptocurrency option because of confirmation lags, high fees and a disconnect between transactions and the fluctuations of the currency's value.
In fact, digital cryptocurrency overall has had its fair share of failures. But despite them, many people still believe cryptocurrency has a bright future. In an interview, Kevin Murcko, CEO of CoinMetro, for instance, firmly stated his belief that cryptocurrencies are still developing and that there is more we'll see in the cryptocurrency space.
"The cryptocurrency and blockchain industries are works in progress," Murcko said. "Look at bitcoin, for example; it's not the way it was almost a decade ago. Aside from the change in value, it's operating in different terrains. It's receiving more feedback in terms of problems that provide areas for growth, development and innovation."
True, cryptocurrency has had its ups and downs. However, the following trends of the cryptocurrency market give us a somewhat intelligent guess as to what we can expect in the future:
1. Cryptocurrencies will receive more patronage from institutional investors.
Given that more and more governments are looking into the regulation of cryptocurrencies, investors are feeling more comfortable about putting their funds into them.
With added regulation, institutional investors will be able to breathe easier and have less anxiety about the uncertainty of the cryptocurrency market. In fact, more investors are seeing cryptocurrencies as a viable asset because of their attractive returns: In December 2017 bitcoin hit a record high of almost $20,000 for one tcoin. Although the price has gone down since then, experts predict that Bitcoin's value could actually go higher than that 2017 figure.
Billionaire investor Tim Draper boldly predicted, for example, that Bitcoin would achieve a value of $250,000 per coin by 2022.
However, any rise in that direction will be a gradual one. While some institutional investors are investing in cryptocurrencies, others are diligently watching the market. Therefore, the introduction and implementation of regulations may attract some of those watchers to jump in.
2. Why cryptocurrencies are being regulated
Lack of security has long been one of the biggest concerns for traders. In fact, a survey conducted by Encrybit, a cryptocurrency exchange platform, revealed that 40 percent of the participants polled saw security as a major concern.
According to the Securities Exchange Commission, cryptocurrency exchanges overall remain unregulated. This is in contrast to cryptocurrency's conventional currencies counterparts, which are regulated by the central banks of their respective countries.
At times, hackers and cybercriminals have already taken advantage of the lack of cryptocurrency regulation and made trading in these currencies unsafe for investors.
However, attempts are in progress to regulate cryptocurrency in the international arena. For example, at the G20 summit in Argentina, directives were made for global regulations.
In a recent conversation I had about the future of the blockchain industry with Ahmed Khawanky, the CMO of IngotCoin, Khawanky emphasized the need to regulate the cryptocurrency market as a way to maintain security.
"When you try to push something new to the market," Khawanky said, "there's a need to win the trust of the people. People won't trust something they don't know or like. Therefore, ensuring security is the heart of the overall success of the blockchain technology."
3. Cryptocurrencies won't stop being volatile.
Despite the measures to ensure stability in the cryptocurrency market, it's still a struggle to stop or at least reduce cryptocurrencies' volatility. There are still so many factors keeping them volatile. These include: the currencies' lack of intrinsic value, the lack of institutional capital, the implementation of regulations and thin-order books, among other factors.
Although regulation of the currency and their markets will help lower volatility, that alone will not be enough to make a considerable difference in cryptocurrencies' volatile nature.
But, as cryptocurrency trading becomes more popular, we should be seeing an ebb and flow of volatility. While some people will benefit from the sudden increases those ebbs and flows bring to cryptocurrencies' value, we should not overrule the possibility of a sudden crash as well.
In short, cryptocurrencies won't stop being volatile. And that's something any investor should plan for.