2022 has been a bad year for cryptocurrency, and the market is facing its worst crisis yet. The crypto market crashed, and the price of the most popular and trusted digital currency, Bitcoin (BTC), plummeted. Other cryptocurrencies, such as Ethereum and altcoins, also tanked in price. The falling prices have led to panic and fear about the crypto future. Once regarded as the “future of money”, crypto prices steadily fall.
During the Covid-19 pandemic, people turned to crypto to store value, a cheaper and faster way of sending money and making payments. By July 2021, the number of crypto users was 230 million globally. At the end of 2021, the number of crypto users globally reached 295 million. These were to grow to 1 billion people by the end of 2022. Since then, the crypto market has been very turbulent, with the crypto prices unstable. This has led to losses for investors and crypto companies.
Current crypto losses
Popular crypto, such as Bitcoin, lost more than 70% of its value in 2022 to trade below $20,000. This is in comparison to its all-time high of $68,000 in November 2021. The world’s biggest stable coin pegged 1 to 1 against the US dollar, Tether (USDT), also fell below the $1 mark. The crash in crypto prices has led to fears and more concerns about the possible future of cryptocurrency. Before we look into the future, let’s first trace the journey of cryptocurrency.
Cryptocurrency’s journey
History and development of cryptocurrency
The first decentralised cryptocurrency, and the most popular, is Bitcoin, introduced in 2019. Eventually, other digital currencies emerged, and by March 2022, there were about 9000 cryptocurrencies in circulation.
The crypto idea
The idea of crypto was first introduced in 1983 by David Chaum, an American cryptographer. He envisioned anonymous electric money, where people could send money without using centralised institutions like banks. Later in 1995, Chaum created a prototype cryptocurrency called Digicash. Crypto requires user software to withdraw money from a bank. It also required specific encrypted keys before any money could be sent to anyone. This served to jumpstart the search for a virtual currency. In 1998, blockchain pioneer Nick Szabo attempted to create a decentralised virtual currency called Bit Gold. Although the project never materialised, it is the foundation that led to the development of Bitcoin.
The emergence of Bitcoin & other cryptocurrencies
The cryptocurrency we use today, Bitcoin, was first invented in 2008 and introduced into the market by the pseudonym Satoshi Nakamoto. Bitcoin’s initial price was $0, and few people knew about it. It got its first jump in July 2010, with the price rising to $0.09. Despite the drawbacks, the currency broke into the market and was finally fully accepted. The world embraced the new virtual currency, and it went to $1.06 by February 2011. In early 2010 Bitcoin was the only crypto in use, but since then, there has been a creation of new peer-to-peer payment systems (cryptocurrencies).
These digital payment systems are unregulated by any central institution, such as governments or central banks. In 2011, Litecoin emerged and became the second biggest cryptocurrency by market cap after Bitcoin. In the same year, other cryptocurrencies, such as Namecoin, started being released and termed “altcoins”. Bitcoin experienced a huge rise in 2017, with its price climbing from $434 in January 2016 to trade at $20,000 in December 2017. At this time, another cryptocurrency
Ethereum was making waves in the market. Ethereum launched in 2015 and became one of the most used and trusted cryptocurrencies, second only to Bitcoin by market capitalisation. Ethereum opened the space for smart contracts bringing a wide range for the use of crypto and blockchain. The introduction of Ethereum also brought the rise of Initial Coin Offerings (ICOs). These fundraising platforms allow investors to trade and invest in cryptocurrency, just like shares and stocks. Throughout the creation and adoption of cryptocurrency, there have always been concerns over regulations. Some see the lack of regulations as the cause of the many fluctuations facing the crypto market today.
Regulations & scammers
The regulatory bodies have been reluctant to create laws and regulations to govern the operationalisation of crypto. Since Bitcoin’s adoption, some governments have banned the use of the currency. El Salvador was the first country to take a bold step in leading the world toward a new era by legalising cryptocurrency. The failure to put laws and regulations on cryptocurrency has left gaps in its use. These have led to the growth challenges such as scammers. 2014 to 2016 saw a rise of scammers in the crypto market, robbing millions of crypto holders and investors. Theft and scams have been persistent to date and continue to be a hurdle to the development and growth of cryptocurrency.
What about the future?
High inflation, high-interest rates, non-regulation, and the war in Ukraine drag down the crypto market. In as much as cryptocurrency has been adopted globally and is not centralised, it fails to differentiate itself from traditional financial trends. This has led it to face the same challenges as fiat currency. Crypto is, however, more affected by fluctuations as it lacks regulation and standardisation. Unlike fiat money which has the central bank backing. Volatility is not a new phenomenon in crypto because the market has faced several ups and downturns. In early 2018 the crypto market reached a capitalisation of $850 billion.
It then crashed by 85%, reaching a market size of $130 billion in December of that year. 2021 was particularly a good year for cryptocurrencies as the market capitalisation or the value of all crypto assets rose from $200 billion in 2019 to about $2.4 trillion in May 2021. In the same year, Bitcoin rose to a market valuation of $929 billion, while Ethereum had an overall valuation of $443 billion. 2022 has been the worst period in crypto, with the market crashing, value falling, businesses closing, and companies firing employees. Seen as the crypto recession, most holders, investors, and enthusiasts are anxious about the future.
Analysts have estimated that the cryptocurrency market will triple to $5 Billion by 2030. In the current state, we can’t help and wonder whether there is any future for cryptocurrency. The indefinite and indeterminate nature of the crypto market continues to get more and more complex as the number of investors and users fluctuates. Cryptocurrency prices are quoted in dollars. In the current state, as the price and value of crypto crash, investors are rushing to exchange their digital assets with the dollar to protect their investment value.
Crypto and the dollar
If the value of your crypto is in dollars, what happens when you cannot exchange the same crypto assets for dollars.? The crypto market fell as everyone tried to cash in on the scarce dollars. This was because there were no sufficient dollars for everyone trying to exchange crypto. What does this imply to everyday crypto users? Many believe that crypto’s dependence on the dollar will make it harder for crypto to rise again. Analysts believe crypto will only rise and reach a level where enough dollars exist to sustain an exchange. The Fed (US Federal Reserve) is tightening its monetary policy and has not issued any guidelines on deposit guarantees on cryptocurrency. This and the lack of a regulatory framework are perceived as obstacles to crypto. A substantial number of investors have great faith in the regulation of cryptocurrency as a way of achieving stability. They are, however, afraid of the many impacts and repercussions that may arise from the regulation. Therefore the regulation is viewed as one of the ways crypto can maintain its use globally.
All is not gloomy!
Technological advancements and trends have had the world shifting more towards the adaptation of technological modes of trade. Cryptocurrency is a new way forward related to business, banking, and trade, being the first virtual model of currency to infiltrate the market. The currency has, in many ways, proven to be better and more efficient than fiat currency. It is preferred for fast transactions and cheaper and easily accessible cross-border payments.
Conclusion
However, the future of crypto solely rests on the regulations set by the governments. The fact that the nature of cryptocurrency is inconsistent and keeps on changing and evolving makes its future more uncertain.
