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After a year that will shape our lives in many ways for years to come, cryptocurrencies finally appear to have made their mark and look to be here for good. The meteoric rise and fall of the price of Bitcoin in 2017-18, paired with the constant unpredictability of the prices of cryptocurrencies from one day to the next, left even many of the experts baffled. Some were quick to condemn the entire crypto movement as, at best, a flash in the pan, and at worst, a souped-up ponzi scheme fuelled by illicit funds and FOMO (fear of missing out).
In the last 12 months, depending on precisely where you place your measuring stick, the price of Bitcoin has risen around 600%. This steep surge can be attributed to the ever-increasing, almost fanatical interest of amateur investors, buoyed by the votes of confidence from financial institutions with the likes of JP Morgan, the Coinbase listing on the NYSE and Tesla investing a good portion of their balance sheet in Bitcoin. It does seem as if this moment will go down in history as the turning point, where momentum around crypto gathered pace and it became clear it was here to stay.
As we begin our slow emergence from lockdown restrictions in the UK and consumers start to feel comfortable sticking their hand in the pockets once again, we enter what is sure to be an interesting chapter in the ongoing crypto saga.
Where did it all begin?
Cryptocurrencies hit the mainstream in 2017, but 2020 was the year when people started to take it seriously. Those working in the financial industry today, or even people simply interested in it, may have observed the heightened focus on financial markets since the beginning of the COVID-19 pandemic.
As the pandemic tightened its grip in early March 2020, it prompted a financial crash, with multiple record-setting point drops throughout the month. Despite these challenges, some organisations saw a strong rebound, and have continued to enjoy commercial success throughout the COVID crisis.
The gains that occurred in pockets of the stock market over the course of the pandemic weren’t isolated to just the traditional markets such as retail. We saw what could be considered as the ‘second coming’ of Bitcoin and other cryptocurrencies. Not since the first mad dash to buy Bitcoin in December 2017 has there been a year where interest in crypto has been so high and enduring.
We’ve seen this play out in the market too - both Bitcoin and its closest rival, Ethereum, have set new all-time high prices during the pandemic, with the current Bitcoin market cap at the time of writing sitting at around $1.1 trillion. For comparison, the peak in December 2017 was $237 billion.
The big bank perspective
Big, established financial institutions have been historically highly cautious about cryptocurrencies. While for many years they may have been written off as a temporary fad, the tide seems to be turning, with prestigious institutions like JP Morgan publicly backing cryptocurrencies, even offering crypto funds for their clients to invest in.
With an ever-increasing amount of investment institutions holding cryptocurrencies in their portfolios, the future does appear to be looking brighter by the day. Aside from Coinbase’s recent and extraordinarily successful IPO, Bitcoin got arguably its most significant public vote of confidence when Tesla invested $1.5 billion in the cryptocurrency. With this increased attention on crypto, as well as the soaring consumer-focused drive by global exchanges to enable FIAT deposits by debit and credit cards, at this moment, it’s easy to explain why we’re witnessing all-time high prices on a near-constant upward trajectory.
As good as it looks?
Despite this somewhat positive outlook, things can change incredibly quickly in the world of crypto. What would happen across a year in traditional markets can happen in a month or less in crypto, from huge spikes in the market to terrifying plummets.
What does appear to be the missing piece of the crypto puzzle today are the real-life applications and use cases. One of the main questions that is continuously posed by those hearing about crypto for the first time is “what can I use it for?”.
Currently, the fees associated with some of the most popular cryptocurrencies inhibit their use for anything outside of being an investment vehicle. This is possibly because the original Bitcoin whitepaper was not created with the mass holding of the coins in mind. The costs become even more prohibitive when compared to relatively low card and FX fees. Some of the barriers in place with cards do not apply with cryptocurrencies, whereas card issuers decide for what you can or cannot use your own money. Many issuers are, for instance, currently blocking transactions with crypto exchanges.
The crypto time warp – what’s next?
A month in the crypto world is akin to a year in the real world. With this in mind, it’s incredible to imagine what the crypto space could look like this time next year. Will the bubble have burst? Will the predictions of a six-figure Bitcoin materialise, or will it showcase a slow decline from the all-time highs like in 2018?
This time around, it may be harder to find people willing to bet against crypto succeeding. Genreal understanding of cryptocurrencies and what blockchain technologies can be used for have been significantly heightened when compared to three years ago. The current flavour of the month is the NFT phenomenon, with people scrambling to buy limited edition pieces of digital artwork, trading cards, even Jack Dorsey’s first tweet. Another exciting development came when the Bank of England announced it has created a task force charged with launching a CBDC (Central Bank Digitial Currency, dubbed ‘Britcoin’).
In a time where hyperbole seems commonplace, one thing is certain: the general crypto-buying users are becoming more educated, and market accessibility has never been better. For many who find themselves amid economic uncertainty brought on by the pandemic, cryptocurrencies could feel too risky to dabble in today. But for others, it is a fascinating, golden opportunity. Outside of taking a ride in his DeLorean, most crypto enthusiasts would be happy to paraphrase Back to the Future’s Doc Brown: the future of the crypto world hasn’t been written yet, so let’s make it a good one.
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