Cryptocurrency is a modern-day medium of exchange. It is essentially decentralized in structure, which allows non-interference from government and central authorities. Although many governments disregard its anarchic nature, cryptocurrency remains a force to reckon with.
Since the launch of bitcoin, the first decentralized cryptocurrency, it has received both appreciation and criticism. It is appreciated for its divisibility, transparency, and portability. On the other hand, criticism is made for its volatility, and its use in illicit activities. Many countries have imposed a ban on cryptocurrency for diverse reasons.
In the views of Jerome Powell, cryptocurrency is a speculative asset. Since cryptocurrency is decentralized in nature, it is not backed by anything hence it becomes difficult to count on it. Due to the volatility, it's absurd to think of it as a useful store of value. According to Rebacca Patterson, Bridgewater Director of investment research, “Bitcoin has a long way to go to become a gold equivalent or proper store hold of wealth.” It becomes very clear that in accordance with the present scenario we need to be pragmatic and cover our bases with cryptocurrency.
The hope that cryptocurrency gains low volatility and - over the course of time- the purchasing power of fiat currency will help to transform its speculated capabilities into reality.
The other question that requires due consideration is who are the people vouching for cryptocurrency? According to Rebacca Patterson, “the money that is going into bitcoin and other cryptocurrencies today is still largely retail.” She thinks that the large institutional money is still not counting on cryptocurrency as a means of diversifying assets in the portfolio. If institutional money comes into the market, a big change might be expected.
A lot of environmentalists and sceptics are concerned about the energy consumption that is required in mining cryptocurrency. The process causes increased carbon emission and poses a serious threat to the environment. Elon Musk of Tesla has also echoed concerns for the environment through a tweet that said,
“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost of the environment.”
He also mentions the usage of more sustainable energy for mining. According to Rebacca Patterson, cryptocurrencies that use less energy and have limited supply may replace bitcoin in future.
Another aspect which in a sense is very crucial about cryptocurrency is the reaction of state governments. Some governments are afraid that cryptocurrency may be used to avoid capital control and can be used for illegal purchases and money laundering thereby pose a severe risk to investors. The very idea of a decentralized digital currency backed by the anonymity of transaction is in a sense a challenge to the idea of state sovereignty. It might also wear away the control of the central bank.
If one shows trust in bitcoin and other cryptocurrencies, they should be prepared to rub shoulders with the uncertainty of its value. There is always a risk of losing investments backed by cryptocurrencies. After all, it is known that cryptocurrency is deprived of any intrinsic value except for what the buyer is willing to pay.
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