In the last couple of months it seems as though cryptocurrency has gone from a fringe technology to one that is on the verge of mainstream. Here is a look at some of the top five reasons why cryptocurrencies have captured the attention of so many people.
Cryptocurrency is not just for hackers, but for the average investor too. It is easy to get caught up in the cryptocurrency craze that has been developing over the past couple of years, but it may be prudent to take it slow and to take a step back from the market.
The cryptocurrency boom has been one of the most rapid growth in the world, rising from a mere $4 billion market cap to a $600 billion market cap in just over 2 years. But it’s not just the market cap that’s risen—many believe the cryptocurrencies themselves are the future of finance.
What Does the Future Hold for Cryptocurrency?
Cryptocurrencies are at a fork in the road after the market collapses of May and June 2021. New retail interest will either continue to drive adoption, or cryptos will see a long-term decline. Let’s talk about what the next few days may bring in terms of adoption and price movement.
Adoption is number one.
For a fresh wave of adoption to happen, mainstream retail investors will need to put more money into cryptocurrencies and use its products more. The bulk of people have treated cryptocurrencies as a test investment, putting aside a little amount of money from their savings to see where their coins will take them.
The most significant disadvantage has been the extreme price volatility of cryptocurrencies. People don’t enjoy seeing a significant portion of their assets suddenly depreciate by 50%, as occurred only a few months ago. High volatility is expected to persist until cryptocurrency is widely accepted as a genuine currency and asset class.
So it’s a vicious circle: they’re volatile because they’re not accepted enough, but people are hesitant to adopt them because they’re unpredictable. What method will be used to undo the knot? With activities, technology, insurance, and laws, the solution is outpacing the competition, which is the conventional legacy financial system.
- Cryptocurrency acceptance must be encouraged via activities. Cryptocurrency games, for example, have recently become very popular on the internet; by playing these games, you can earn cryptocurrency. I’ve started playing Axie Infinity, the top game in this new area, in which I can make $30 in bitcoin each day from a $1,000 investment in an axie (a gaming character). Young adolescents, populations who lost their jobs due to the pandemic, and other disadvantaged areas of the globe have used their acquired cryptocurrencies as a means of payment to trade virtual and real products with one other, and these games have been a helpful way of earning cash for them. Increased involvement in these games may help to create virtual economies and drive the next wave of retail adoption.
- Cryptocurrency price fluctuation must be addressed by technology so that people may use them in their everyday lives, such as when purchasing groceries or a cup of coffee, or when paying bills. To do so, you must first determine how much you will spend on a transaction. You feel safe using US Dollars since their value is mostly steady. But, given that cryptocurrency values fluctuate often, sometimes by more than 10% in a single day, what would the pricing of products and services be in cryptocurrency terms? One option is to utilize “oracles,” which constantly transmit cryptocurrency exchange rates to a vendor, allowing for the automated provision of a real-time cryptocurrency price at any given moment. Although there are oracle cryptocurrencies that fulfill this role, they are not extensively utilized at the moment. At the present, bitcoin payments are accepted by just a few online businesses and physical locations across the globe. Transacting in cryptocurrencies will become much more streamlined if oracles can be embraced as an infrastructure, and companies will be able to conduct their financial activities with much more transparency. Pop culture has always been a driving force behind cryptocurrency. If widespread commercial use takes off, with well-known companies using cryptocurrencies in their operations, retail demand and acceptance are likely to follow behind.
- The cost of transacting with cryptocurrency must be reduced through insurance. Due to their limited transaction capacity, cryptocurrency systems quickly get clogged. Congestion results in lengthy wait times and exorbitant transaction costs of up to 10 times what it would usually cost to complete your transaction. For example, when Ethereum hit an all-time high of $4,500 in May, the demand for it was so strong that I was requested to pay $400 in transaction fees to make a $200 Ethereum transfer! Otherwise, I’d be forced to wait for hours, if not days. Normally, the average transaction charge is less than 1% of the transaction amount.
Furthermore, Decentralized Finance, which accounts for about 90% of all crypto businesses, is too costly and unworkable. Borrowing rates for cryptocurrencies are absurdly expensive, reaching up to 100% per year as a result of the inherent price and technological risk. Furthermore, while borrowing, a cryptocurrency collateral of 150 percent of the loan amount is needed, and the collateral may be quickly liquidated if the value of the cryptocurrency drops.
The absence of insurance products, which are the backbone of the existing, legacy financial system, is one of the main reasons why the bitcoin sector is costly. The sharing of risks is what insurance is all about. Taking risks becomes more cheap when risks are pooled, which will likely decrease expenses and fees, as well as price volatility.
I bought a cryptocurrency that protects cryptocurrency assets against hackers, transactions from excessive fees, and collateral from liquidation.
Insurance policy sales revenues are paid as dividends to coin investors, while policy purchasers may, for example, borrow from DeFi platforms at cheaper rates with less collateral since their risk is shared among coin holders, such as me, who compensate for triggering occurrences.
If cryptocurrency insurance products become widespread in the future, they have the potential to make crypto more cheap and less volatile, which may lead to a new wave of mainstream acceptance.
- Cryptocurrencies must be classified as a legal asset class by regulations, which will safeguard people’s bitcoin holdings and enable for the accounting of cryptocurrency payments. Cryptocurrency coins are stored in a software wallet on your computer, browser, or smartphone. Your keys, which are a series of passwords that allow access to your bitcoin balance, are stored in the wallet. However, much like your actual wallet being stolen on the street, software wallets may be hacked. This occurred to me once, when the private keys to one of my software wallets were stolen by an online imposter, who then emptied my wallet of all money. Another option is to keep your cryptos at a cryptocurrency exchange, which acts as a bank for your cryptos. However, even the most well-known cryptocurrency exchanges are just 4-5 years old and have yet to prove their worth. Furthermore, since they are not a financial institution, your money at exchanges are not guaranteed by the government. Your deposits with a legitimate financial institution are guaranteed by the government up to a specific amount (in the United States, up to $250,000). Cryptocurrency hacks and thefts would be susceptible to legal prosecution if cryptocurrencies were recognized as an asset class, and your money on cryptocurrency exchanges would be safeguarded by law. People would be more confident in investing in bitcoin if this were the case. Furthermore, if cryptocurrencies are legally recognized as an asset class, companies would be able to account for bitcoin payments, thereby accelerating widespread adoption.
Cryptocurrency is a new asset that is growing in popularity but has been hampered by a variety of dangers, making it very volatile.
Regardless, many people view cryptocurrencies as the future of money, and if it can keep up with the competition, prices may skyrocket in the future, especially because worldwide acceptance is still far from complete.
2. Price Movement
Bitcoin, the most popular cryptocurrency, fell from $65,000 to $30,000 in only ten days in May, while Ethereum fell from $4,500 to $1,700 in the same time frame.
Other cryptocurrencies experienced similar losses since these two are market movers and typically decide the destiny of all 10,000 cryptocurrencies in terms of price movement.
After a two-month period in which prices stayed steady at the bottom with no major purchasing activity, the cryptocurrency market began to rebound in August, with Bitcoin rising from $30,000 to $48,000 and Ethereum rising from $1,700 to $3,400 on August 16th, 2021.
Market participants are now wondering if the current upswing will continue and reach new all-time highs, or whether it was simply a relief rally that will reverse and plummet to new lows.
Here are a few key variables that may influence how cryptocurrencies perform in the next days:
- Stock markets: Stock markets and the cryptocurrency market have historically been highly correlated. Uptrends in stock markets were most likely followed with cryptocurrency rallies. So it would be logical to suggest that some of the capital transferred from the stock markets have pumped up the crypto markets in the past. In fact, the recent cryptocurrency rally in August went in tandem with stock markets. Major US stock markets like Dow Jones, S&P 500, and Nasdaq started to rise on the same date with Bitcoin and Ethereum, which was July 20th and all moved almost identically since then. On the flip side, cryptocurrencies responded very negatively to stock market crashes in the past. For example, the December 2018 stock market crash dropped Bitcoin from $6,000 to $3,000, while the coronavirus stock market crash in March 2020 made Bitcoin crash from $7,000 to $3,800 in one day. Cryptocurrencies are just a smaller, more volatile version of the stock market. They rise more, they drop more but the direction has been the same. We have no record of cryptocurrencies tanking while the stock market is surging. S&P 500, the stock index of the 500 largest publicly traded companies in the US has a total value of $38 trillion, while the entire cryptocurrency market, the total value of all those 10,000 coins, is currently at $2 trillion. So, the cryptocurrency market has a lot of room for growth if investors have more faith in its future. If only 10% of the stock market would move to crypto, it would hike the cryptocurrency market capitalization by 200%!
- Interest rates: Today, numerous banks in various countries offer savings accounts with interest rates of less than 1%. Investors are looking for new methods to invest their money since interest rates are so low. This boosted demand for risky assets like equities and cryptocurrencies, resulting in the cryptocurrency market’s meteoric rise in price over the past decade.
When interest rates rise, investors, on the other hand, choose to lower their holdings in riskier assets in order to maximize the secure and guaranteed savings interest income. Interest rates across the globe, for example, began to rise in late 2017.
Bitcoin reacted by going down from a high of $20,000 in December 2017 to a low of $3,800 in March 2020, which also happened to be the day when interest rates began to decrease as a result of the pandemic’s onset.
Interest rates are expected to be increased in the United States as a result of recent inflationary pressures. If interest rates begin to rise, money may begin to flow out of the bitcoin market, causing cryptocurrency values to plummet.
- False Top: Bitcoin’s rapid rise from $10,000 in November 2020 to $65,000 in April 2021 suggests that $65,000 is a fake top, since this rate was unheard of throughout Bitcoin’s retail mainstream era. When prices rise too quickly, markets often form a false top. In an uptrend, a false top is not the final peak price, which occurs after a collapse wipes out the younger, weaker, novice investors. So, even if $65,000 was a false peak for Bitcoin, new all-time highs for cryptocurrencies remain conceivable in the coming months.
There is no way to predict which way the markets will go. Markets are not always logical; prices may rise despite no new advances in the adoption space, or they may decrease while the stock market rises.
Before investing in cryptocurrencies, you should think about all of the variables we’ve mentioned and attempt to identify a point of convergence between them. This must be complemented by creating a goal and a strategy by responding to the following two questions:
- What am I hoping to achieve by purchasing the coin? (Would you want to sell it fast or keep it for the long haul?)
- What is my highest and lowest price? (If the currency falls below a particular low level, you purchase; if it rises over that barrier, you sell.)
When things go the contrary of what you anticipate, the extreme volatility of cryptocurrencies may be excruciating, taking a toll on your emotions. In the long term, a succession of similar occurrences will wreak havoc on your mental health. You will only have peace of mind and be able to deal with cryptocurrency’s high volatility if you stick to your objective and strategy.
During their early adoption phases, cryptocurrencies saw huge increases, aided by historically low interest rates and soaring stock markets. Early adopters have invested in cryptocurrencies because they believe they are the “future of money.”
Further growth, however, may be difficult since the next wave of adoption would almost certainly require the involvement of mainstream companies and millions more people, both of whom are presently hesitant to engage owing to:
- a lack of incentives for people to adopt cryptocurrencies,
- Due to the limitations of our time’s technology,
- insurance goods are few,
- Regulations are lacking.
So, where does the Bitcoin industry go from here?
As long as interest rates do not increase and stock markets do not collapse, history indicates that if the aforementioned problems are addressed, additional adoption will take off and cryptocurrencies will be set for another surge. At the end of the day, though, price reigns supreme.
Markets are not always logical, and prices may go in the opposite direction for long periods of time. To ride the cryptocurrency rollercoaster, you’ll need to set an investing objective and a strategy, and then stick to both like glue.
If you’re just starting to dabble in cryptocurrency mining or are thinking about investing in it, you’ve likely heard a lot of different opinions about where the industry is headed. There are a lot of Reddit posts and tweets claiming that crypto is doomed and the asset class is going to crash. Or, on the other hand, many suggest it’s a growing market that will continue to grow for years to come.. Read more about next cryptocurrency to explode 2022 and let us know what you think.
Frequently Asked Questions
Whats the next best Cryptocurrency 2021?
The next best cryptocurrency 2021 is a difficult question to answer. There are many different factors that go into the determination of what the next best cryptocurrency will be in 2021. These include things such as market cap, price, and other factors like that.
What crypto could be the next Bitcoin?
This is a difficult question to answer, as there are many different cryptocurrencies that could be the next Bitcoin.
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