Cryptocurrency was expected to be the next biggest thing in finance.
What could be better than digital cash that could come in the form of cash, a bond, digital tokens or a bar of chocolate?
Unfortunately, although one of the biggest cryptocurrencies did come to market and is in circulation, investors’ enthusiasm is waning.
At the end of 2018, the market capitalization was less than half of what it was at the end of 2017. And the losses have been widespread. Not all cryptocurrencies have fared well. Coincheck, one of the largest cryptocurrency exchanges, recently experienced a hack, losing all of its customer digital funds worth over $500 million.
Although cryptocurrencies and financial experts maintain that there is always a place for cryptocurrencies, whether it is as a medium of exchange, means of exchange or for private purposes, in today’s regulatory environment, cryptocurrencies are only bound by regulations and central banking.
In 2018, cryptocurrencies have started to face challenges on many levels, both at the central bank level and a regulatory policy level. These efforts show that cryptocurrencies have become less attractive as a medium of exchange, due to the increased tax burden and the increased availability of fiat currencies, especially in the form of tokens offered by central banks. The World Gold Council, a not-for-profit trade body, reported that the gold market will have more than 15 times as much demand in 2018 as that of bitcoin, if not more.
In 2018, the central bank began actively marketing their tokens and is working to offer payments via their new digital tokens, after a new cryptocurrency blockchain could not open a payment gateway between central banks and payment processors.
Another concern is about cryptocurrency’s stability. During the year, miners and exchanges have had to deal with crypto price fluctuations ranging from a low of $1,000 in the late summer, to today’s $11,500 price.
In 2018, the Securities and Exchange Commission (SEC) sent letters to seven bitcoin exchanges and two cryptocurrency exchanges. It is believed that cryptocurrency exchanges that do not register will lose compliance and have to stop conducting business.
There is no other regulation and oversight for cryptocurrencies like this outside of the banks, and the question remains: “Should cryptocurrencies still be considered as one of the country’s leading emerging sectors, rather than thought of as highly speculative by all mainstream members of the financial community?”
There is a balance to be made here, as we have seen in other countries.
A notable example is the U.K. government, which issued regulation in November 2018, warning crypto issuers and investors in particular to carry out “stress tests” to examine just how safe these tokens really are.
In the United States, the SEC was the first U.S. governmental body to regulate crypto. The SEC is going further to ensure transparency and licensing regulations for institutions like ICOs. The SEC also has rules for individual investors who are giving money to ICOs.
In addition, the SEC has also banned use of any bitcoin for transactions like wire transfers, withdrawals, or purchases of high-interest financial instruments, like real estate or stocks. If users tried to sell bitcoin for fiat currency, they would no longer be able to.
Cryptocurrencies may present immense opportunities, especially in industries where the level of technology, innovation and application is not very similar to anything else. However, it is equally important to consider the implications of competition if current regulatory platforms are not implemented.
In today’s regulated financial sector, the adoption of blockchain technology is required and needed to displace old power structures. It is important to learn from the past and not allow finance to remain the same as it was in the past.