How will fast emerging platforms and regulatory hurdles impact cryptocurrency industry

Cryptocurrency market have gained wide-scale popularity in the past few years as large businesses and investors are intrigued by the new opportunities and benefits associated with these digital ‘currencies’. Cryptocurrencies, or cryptos, are designed to work as a medium of exchange and exist completely online. Backed by blockchain technology, cryptos operate without the requirement of a central authority and eliminate certain processing and transaction fees. As these digital assets are not backed by a bank or other traditional lending institutions, transactions made using cryptocurrency are highly encrypted, subsequently keeping an individual’s personal information private.


Advent of digital coins has given consumers new investment possibilities other than that offered by traditional banking products. There are several benefits of investing in cryptocurrency, some of which include elimination of banking fee, easy access to a wide range of investment opportunities, low transaction fee for international payments and direct control over investments. It is estimated that global cryptocurrency market will record a double digit CAGR up to 2027.


Although, alike its several benefits, cryptocurrencies are also limited by certain drawbacks like lack of regulation and supervision in most countries, cybersecurity issues, volatile value, limited usage, and infrastructure stability problems due to fast growth.


Why is Bitcoin dominating the cryptocurrency market?

Bitcoin is considered to be the first decentralized digital currency sent from user to user on a peer-to-peer network. It was developed with an intent to cut out any sort of middleman in a transaction. Unlike traditional fiat currencies which get devalued over time due to its unlimited supply, bitcoin is deflationary as they are limited in number.


According to reports, currently there are only 21 million bitcoins available in the market. With its demand growing at an exponential level, the price of bitcoin may continue to grow in the ensuing years, but subject to certain volatility attributed to external factors. The overall cryptocurrency industry was influenced to a large extent with the rising awareness about bitcoin and inspired alternatives.


Environmental Impacts:

It is prudent to mention that bitcoin mining still stands as an energy intensive process. Analysts at the International Energy Agency (IEA) state that power utilized for bitcoin mining has risen constantly from 2016, accelerating sharply in 2020 by hitting a current all-time high level of 149 terawatt-hours (TWh). Comparing to these figures, Google’s entire energy usage stands at 12.2 TWh, while approximately 200 TWh of power is used by all data centers in the world, apart from those that mine bitcoin.


Though, as a solution, many companies are now seeking ways to mine bitcoin using renewable energy, thereby looking to mitigate its impact on the environment. Recently, American financial services & digital payments company, Square, Inc. announced its partnership with blockchain technology firm Blockstream Mining to develop an open-source, solar-backed bitcoin mining facility in the U.S., with an aim to drive adoption and efficiency of renewables within the bitcoin ecosystem. Similar efforts globally will create a better outlook towards cryptocurrency industry among commercial users.


Additionally, global cryptocurrency yield-earning platform, Celsius has announced new investments of over $200 million to scale its existing interests to help vitalize Bitcoin mining in North America through renewable resources, reinforcing the regional cryptocurrency industry forecast.


What makes cryptocurrency so volatile?

Contrary to traditional fiat currencies, cryptocurrencies are not issued by a central bank and aren’t impacted by inflation rates, monetary policy, and economic growth initiatives that typically influence the value of a normal currency. However, the worth of cryptocurrencies can be influenced by some other factors like its supply and market demand, cost of producing digital currencies (like for bitcoin through mining process), emergence of more competitive options, trade and exchange platforms, regulations on its sale and internal governance.


For example, recently Bitcoin made it to the headlines after its value dropped drastically when Tesla CEO Elon Musk raised concerns regarding the currency having a severe impact on the environment, given to the amount of electricity required in its mining process. Instances like China’s crack down on mining and trading of the cryptocurrency have also significantly influenced the price of Bitcoin, eventually spreading panic and uncertainty among crypto traders and investors towards its acceptance. The doubts regarding bitcoin values among consumers has kept many people away from the cryptocurrency market as a whole.


How will cryptocurrency disrupt the banking industry?

Cryptocurrencies are independent from central banks. The risk associated with these digital assets infiltrating traditional financial systems has raised concerns among regulators. However, it is likely that banks could be largely insulated as the direct or indirect exposure to cryptos is expected to be limited. If cryptocurrencies do become an asset class, its impact on financial services firms may be gradual on the pretext of coordinated approach of global policymakers and regulators.


With blockchain technology, that enables the creation of a shared digital transaction ledger, financial services firms could consider wide-scale adoption of cryptocurrencies in coming years. Earlier, many countries were overlooking the acceptance of cryptos. Both China and Vietnam had banned the use of cryptocurrencies as a lawful means of payment a few years back. Now, Vietnamese authorities have initiated research into the technology to assess and develop regulations for crypto usage.


As of June 2021, China and Vietnam were ranked second and tenth respectively in terms of profits earned form cryptos. But when it comes to banking, China had barred financial institutions, including banks and online payments channels, in May this year, from offering services related to cryptocurrency transactions, and informed investors against speculative crypto trading as they are virtual currencies and their prices can easily be manipulated. As evident, the banking sector has still some way to go with regard to integrating cryptocurrencies in most countries.


Top 5 cryptocurrencies to look out for in 2021


Bitcoin (BTC)

Bitcoin (BTC) continues to be among the most popular and highest valued cryptos in the market, and is expected to dominate the cryptocurrency industry despite volatility in its prices. Although bitcoin value is unpredictable, it has witnessed a steady upward trend over the years. Reportedly, its price surged to over $60,000 in April 2021, reaching a market capitalization of over $1 trillion.


Ether (ETH)

Ether is the second-largest cryptocurrency in terms of market capitalization following Bitcoin. Compared to Bitcoin, Ethereum allows individuals and companies to do much more than just transfer money between entities. It offers several methods of exchange, including cryptocurrency (Ether), smart contracts and EVM (Ethereum Virtual Machine).


Tether (USDT)

Compared to other cryptocurrencies such as Bitcoin and Ethereum whose price keeps changing,  the cost of Tether is more stable, helping it to stand out amongst other currencies. Tether is easy to buy and sell and is often used as a way to hold money on exchanges when investors feel the market is extremely volatile.


Cardano (ADA)

Cardano’s ADA token aims at tackling the scaling and infrastructure problems that were once observed with bitcoin. By implementing a settlement and computational layer, Cardano ensures unlimited scalability and quick transactions. It aims at solving problems associated with interoperability, scalability, and sustainability on cryptocurrency platforms.


Dogecoin (DOGE)

Dogecoin was founded as a joke for crypto enthusiasts, but is now one of the top cryptocurrencies available in the market. Recently, the cryptocurrency gained attention of some major global companies. For instance, in 2021, SpaceX revealed that it considers on making Dogecoin the first cryptocurrency used for funding a space trip.

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