Experts: Is Cryptocurrency the Way of the Future, or a Sinking Ship?
Written by
John Csiszar
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Amen Oyiboke
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Love it or hate it, cryptocurrency is definitely on the rise. While it’s still a long way from replacing fiat currency, as many of its supporters believe will eventually happen, there’s no denying it’s having its moment in the spotlight. In addition to the constant coverage in the financial media, even the U.S. government is talking about developing a strategic reserve of cryptocurrency.
But has something fundamentally changed since crypto’s days as a pure speculation? Or is it still “rat poison squared,” as famed billionaire investor Warren Buffett once called it?
Here’s a look at what experts believe about cryptocurrency for the future.
Arguments Supporting Crypto
Regardless of its mysterious origin and debatable value, there are some objective reasons why crypto may indeed be the way of the future. Here are the primary arguments.
Market and Governmental Acceptance
Ravi Sarathy, Northeastern University professor of international business and strategy, believes that the SEC’s approval of spot bitcoin Exchange-Traded Funds (ETFs) in Jan. 2024 marked a turning point. According to an article published by the Northeastern Global News, Sarathy said, “Once the SEC was pushed to accept bitcoin and say, ‘It’s OK to have an exchange-traded fund,’ it became possible for a very large number of people to suddenly say, ‘Hey, I’ve been hearing about Bitcoin. Maybe now that it’s so easy, I should do it.'” For better or worse, this type of mass adoption is likely to keep cryptocurrency in the public eye, at the very least.
Decentralization
The rallying cry for cryptocurrency, almost since its inception, has been its decentralized nature. Unlike fiat currencies, which are issued and controlled by governments, crypto operates on the blockchain with no central authority.
Safety and Security
According to Forbes, one of the main strengths of crypto is its security. Not only are crypto transactions secured on the blockchain, but each crypto wallet has its own unique key that is required to open it. As you’re the only one with the key to your wallet — assuming you keep it secure — you are the only one who can ever access it. Just be sure to keep it secure.
Reasons To Avoid It
For every argument in favor of cryptocurrency, there’s at least one or more against it. Here are some of the reasons experts recommend investors avoid it.
Volatility
Even with its increased acceptance, Bitcoin and other cryptocurrencies primarily rise and fall based on speculation. Buyers believe that someone else will be willing to pay a higher price for their crypto, if not now than in the future. With no intrinsic value, trading in cryptocurrency is notoriously volatile — and that’s likely to continue. Until cryptocurrency can stabilize, most economists and bankers won’t think of it as “money.” Cecilia Skingsley, deputy governor of Sweden’s Riksbank, said in an interview with The Guardian:
“They are not a very stable store of value — they fluctuate a lot — and it’s not a very efficient medium of exchange because you don’t buy your groceries with bitcoin, you don’t get your salaries in bitcoin, and you certainly can’t pay your taxes with bitcoin.”
The volatility inherent in cryptocurrency not only makes it risky for investors, but it also blocks the path for its own usefulness as an alternative currency.
Fraud
Cryptocurrency is such a new, exciting, and misunderstood asset class that it’s ripe for scams. The Federal Trade Commission warns consumers that cryptocurrency scams can come in many forms, from “investment managers” offering you unlimited returns to scammers impersonating everything from government officials to fake employers or even potential love interests. The fact that fraud is rampant around cryptocurrency makes it less likely to become a mainstream currency.
Failure as a Hedge
Cryptocurrency is often touted as a hedge against market volatility, but according to William Dickens, a Northeastern professor of economic and public policy, “Bitcoin doesn’t cut it …. You want something that moves in the opposite direction of the stock market, or at least not moves with it as much as other stock assets do.”
He added, “Bitcoin has what’s called a beta, which is a correlation with the S&P 500 of about point 4, which is pretty low, but gold is actually negative or very close to zero.”
In other words, crypto moves more in line with the market than other traditional hedges like gold. This reduces its value in this regard.
Environmental Risks
Dickens also identifies environmental concerns as a negative, dragging down crypto. “Bitcoin is particularly bad in that regard,” he said. “The proliferation of Bitcoin miners is causing problems for the electrical grid in a number of places.”
A study by Nuri C Onat, Murat Kucukvar and colleagues found that bitcoin mining has a shockingly large carbon footprint. According to the researchers, each bitcoin transaction produces the same amount of carbon emissions as driving a car with an internal combustion engine between 1,600 and 2,600 kilometers, or roughly 1,000 to 1,600 miles.
The Bottom Line
The jury is still out in terms of whether cryptocurrency will ever fully go mainstream. On the one hand, it’s become more popular than ever. Nowadays, most people are at least aware of cryptocurrency, and the SEC itself has gone so far as to approve bitcoin ETFs.
If acceptance continues to grow, volatility might decrease, making it more useful as a real currency. However, for the time being, you should expect cryptocurrency to trade like the speculative, high-risk asset that it still is.
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