Exploring the paradoxical rise and uncertain future of crypto

The last 18 months have seen an astronomical rise and transformation in crypto, yet its future has never been so unclear. The most recent dip in cryptocurrency valuations comes as little surprise for seasoned investors, though leaves many who are interested in the space wary of joining in.

For the past few years, the cryptocurrency market has boomed. Throughout the pandemic, many first-time investors flocked to internet forums like Reddit where an entirely new category of investments, meme stocks and ideas of overnight riches, drove more everyday consumers than ever to buy crypto.

All this attention on the crypto market, however, has begun to threaten the very core of what makes crypto so attractive to everyday investors – its decentralised, borderless, and unregulated nature. Around the world, traditional finance institutions are entering the crypto market, and governments are drafting up regulations and/or outright bans on the trade and mining of digital currencies.

The future of crypto is uncertain, but exploring how current and potential investors feel about the many possibilities on the table can give us a glimpse into how things may play out.

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How we got here

It’s sometimes surprising to remember that cryptocurrency was only invented a little over a decade ago. The recent growth of the market has been explosive and has fundamentally changed the profile of the average investor.

Before the recent rise of crypto into the mainstream, investors were on the fringe of finance and technology. They were enthusiasts in a niche space and were among a small subset of the population who knew and understood the blockchain.

While younger internet users still make up the majority of cryptocurrency investors, older consumers have begun to back crypto at much faster rates. In the U.S., consumers over 35 years old make up just under half of those who expect to invest in cryptocurrency in the next 6 months.

For a lot of these current and potential investors, crypto offers a new way to handle their finances, and many also find that the financial freedom of crypto has liberated them from the rigidity of traditional banking.

But everyday consumers aren’t the only ones getting involved; more recently, the upsides of cryptocurrency have begun to attract more traditional institutions. Companies like Tesla and Coinbase, for example, now hold millions in Bitcoin.

The larger pool of money in the market means greater potential for everyone, but the institutional involvement and the massive single transactions taking place are beginning to challenge the ability for crypto to operate outside of traditional finance as it once did. And here lies the paradox.

Cryptocurrency, built on the idea of creating a new type of monetary system free from government oversight and restrictive access, has now grown so big that it’s begun to attract the very regulation it promised to avoid.

What might the future hold?

Interestingly, crypto investors are open to the idea of greater regulation in the market, for the most part. Based on data from GWI, 46% of crypto investors say they support regulation, and this rises to more than half of consumers who say they already use crypto for transactions.

Many investors think regulation will work to normalise the budding digital economy. These optimistic crypto enthusiasts hope that some regulation (emphasis on the “some”) will allow more businesses to accept crypto as payment for goods and services, and put crypto on the same plan as conventional money. However, these same investors also worry that any regulation will severely limit the things they value most about crypto.

Over a third of current investors predict regulation will result in more government surveillance and reduce the privacy and anonymity currently guaranteed by crypto. The free and anonymous nature of crypto is often used to paint it as a force democratising finance, but the prospect of regulation makes it clear that this future could be on the chopping block.

So investors’ feelings about regulation often come across as paradoxical and unclear. They’re supportive of the idea that oversight can promote stability, yet they’ve benefited greatly from an unregulated, more volatile market. They’re hopeful that a regulated future will lower the levels of crypto fraud and theft, yet don’t want to give up the anonymity in the market today.

For these reasons, investors are united on who they want to be the agents of regulation. Investors trust cryptocurrency exchanges, tech companies, and global economic groups far more than national governments and traditional banks to lead new crypto oversight.

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Where we go from here

Sadly, investors may not get the chance to see their contradictory hopes and dreams come to fruition. In the U.S., the Biden administration has made it clear that crypto regulation is coming sooner rather than later, and global conferences on fraud and cyber crime prove the international community is collectively considering the future of decentralised finance.

Yet regardless of the plans forming in government circles, more and more opportunity lies in crypto as awareness, popularity, and availability increase. Retail investors continue to flock to crypto exchanges, and many businesses are finding their own ways to cater to the growing community.

So, despite the fact that the market in a few years may be more regulated and filled with traditional banks than initially hoped, the very idea of regulation has made it clear that investors still trust technology companies and crypto exchanges to lead the future of their market.

Written by Doug Gorman, insights analyst at GlobalWebIndex (GWI)

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