As the who’s-who of cryptocurrency and blockchain mingled last week at the Miami Crypto Experience, the cryptocurrency market continued its climb. The wide variety of tokens and speculation-driven trading has led to extreme market swings, but the sector as a whole has made many millionaires and even billionaires over the past year.
Bitcoin continues to set new record highs seemingly every other month, and it’s become apparent that digital currency hasn’t died off quietly the way many expected. In fact, it’s doing quite the opposite. While it clearly can’t continue the current boom indefinitely, it’s cemented itself as a considerable part of the world economy.
The question now has shifted from “when will cryptocurrency die?” to “what are the next big challenges for cryptocurrency to overcome?”
Challenge Number One: Overregulation
Long term, this is arguably the biggest hurdle. Some countries have been very progressive with Cryptocurrency; Canada has a Bitcoin Electronically Traded Fund (ETF), and El Salvador has accepted it as fiat currency. Some countries, like China, have banned them entirely. The United States can’t even agree on what cryptocurrency IS yet. The CFTC refers to it as a commodity, the SEC refers to it as a security, the Treasury calls it a currency, and the IRS refers to it as property. Yes, you can deduct losses of up to $3,000 in cryptocurrency on your taxes.
Seriously. You can look it up.
Regardless of the country in which you reside, regulation is eventually coming. Wherever there is this much money, there is fraud, theft and many other varieties of financial crime. At present, there simply isn’t much to be done if you buy into a fraudulent coin or have your digital wallet hacked. Increasing crime is leading to increasing calls for regulation.
Yes, crypto is specifically designed to be a decentralized currency, which poses a difficult problem for governments to solve, but regulation is coming. It’s just a matter of when, how much, and how badly it will stagnate the production and growth of new cryptocurrencies. Also, let’s not pretend that government officials aren’t aware of how much money is being made that they don’t have their hands in.
Challenge Number Two: A Speculation-driven Market
The scariest thing about any sort of massive trading boom is the eventual drop. Nobody wants to get left holding the bill when the party stops. Some of the biggest value collapses have happened after speculative bubbles. When a boom starts, everyone wants to get in on the next big thing, so everyone starts dumping their money in, and the stock rises off said speculative buying. Eventually the returns slow, and people start taking their money out. Dot-coms in the 90s. The oil and real estate markets in the 2000s. Even the stock market of 1929.
Is this a challenge for cryptocurrency? At some point, yes, but it doesn’t appear that point is in the near future. First, much of the money in the market is still “new money.” “Old money” still doesn’t much trust cryptocurrency, because of the high risk. But even old money starts paying attention when people start making 800% annual returns on investments. The real investing might not have happened yet. The people who were investing in mortgage-backed securities for a quick buck 15 years ago are still out there…and eventually they’re going to need a new yacht.
Second, a lot of coins are actually tied to blockchain technology, which isn’t going anywhere anytime soon. Their future is a lot less murky than that of “meme” coins.
Challenge Number Three: Black Hats and Scammers:
Greed is one thing. Flat-out dishonesty is quite another.
On November 1st, SQUID value jumped from $38 per coin to over $628 per coin in just over three hours. Fifteen minutes later, it was worth $.0008. The creators of SQUID walked away with $3.4mm, and plenty of investors metaphorically lost their shirts. This might be the most famous “pump and dump” scheme to date, but it’s not the only one. Shady-looking whitepapers and “too good to be true” coins often are.
Additionally, hackers are becoming more and more adept at stealing crypto. Yet, as the black hats keep finding ways to steal, the white hats keep getting better at thwarting them. We recently wrote an article about Lossless token (read it here), and how the company is helping retrieve stolen funds.
So how much of a threat are the black hats and scammers? They themselves are a threat that’s often dealt with by the cryptocurrency community as a whole. However, the bigger threat they pose is the possibility that they may cause a governmental overreaction (see: China.)
As anyone at the Miami Crypto Experience last week will tell you, this market still has a Wild West feel to it. There are fortunes to be made and lost, and trouble to get into if you run afoul of the wrong characters.
So use your head, play nice, and be careful out there.