Is cryptocurrency dying?
From November 2021 to January 2022, the cryptocurrency market lost over $1 trillion in market capitalization. This massive 40% crash in value was just another in a line of massive corrections for Bitcoin and other cryptocurrencies, causing many investors to sell off their crypto holdings at a loss and declare that “crypto is dead.”
But how do we know if crypto is dead?
Although the value of the crypto market — and specifically Bitcoin — is a telltale sign of how investors are evaluating digital currencies, it is not the only factor that determines the health of the crypto market. Regulation, user adoption, mainstream coverage, and global events all factor into the success or failure of cryptocurrency.
To understand whether crypto is (finally) dead, let’s review the arguments for and against the future of crypto.
Is Cryptocurrency Dying?
There is no doubt cryptocurrency is volatile, and huge 50% corrections are the norm. Seen primarily as an investment asset class to most, crypto is relegated to the “speculative investment” corner of the market.
As a digital investment, cryptocurrency has produced impressive returns over the past decade, but is it finally starting to reverse course? Here are the current arguments for and against the growth of cryptocurrency.
The Argument for Cryptocurrency Dying
Although the technology cryptocurrency is built on has forever changed how the financial industry thinks about payment processing and secure transactions, the cryptocurrency that helps grow these networks will not replace traditional fiat currencies.
With increased scrutiny from government regulators, high volatility, and the coming launch of government-endorsed digital currencies, crypto’s days are numbered.
1. It Is Too Volatile to be Currency
Bitcoin was supposed to simply be a way to transfer funds from one party to another, without a central governing authority slowing it down or gouging consumers with fees. Cryptocurrencies were designed to be just that — a form of “currency.”
Fast-forward a decade later, Bitcoin and other cryptocurrencies are speculative investment vehicles with massive valuations, but little real-world utility.
With over 10,000 cryptocurrencies in existence, and more being created weekly, the original vision for Bitcoin being used for everyday transactions is all but dead. Instead, a host of scams, fraud, and shady investment opportunities have taken over the crypto space as people try to get rich quick off the new technology.
Although some projects promise real-world use cases, many are simply white papers filled with empty promises — projects where founders issue tokens and never fulfill the roadmap promised to investors. Hundreds of projects have come and gone, with many becoming completely worthless. With no regulation in place, there is no recourse for unsuspecting investors.
Cryptocurrency cannot be considered a type of national (or global) currency when there is no structure around how to maintain value and protect users from massive price swings.
2. Increased Regulation Will Suffocate It
Because crypto is full of fraudulent projects — scamming users out of billions of dollars in 2021 alone according to CNBC — there is much more scrutiny from the U.S. federal government and other regulators. The Securities and Exchange Commission (SEC) has created several resources warning consumers about the dangers of cryptocurrency ICOs and decentralized finance (DeFi), as well as imposed massive fines on companies that are not properly registered with regulatory agencies.
Because the entire promise of cryptocurrency is a decentralized, unregulated form of exchange, government regulation of crypto will kill the most promising aspects of the platform.
Cryptocurrency regulation is currently a hot topic for U.S. government agencies, enough so that President Biden even signed an executive order to enable federal agencies to explore the risks of cryptocurrency on U.S. financial stability and national security.
Overall, cryptocurrency started as a rebellion against central banks and a government-regulated monetary system, but seems to be slipping into the same regulation and confinement of the system it is opposed to.
3. Central Bank Digital Currencies (CBDCs) Will Outdo It
The U.S. and other world governments are exploring the idea of creating their own digital currencies. Central bank digital currencies (CBDCs) are a digital currency managed by a central bank that is representative of government fiat currency, such as U.S. dollars.
If a centrally controlled digital currency is developed, many believe that the demand for other cryptocurrency will wane because CBDCs will be able to protect consumers with FDIC insurance and the backing and regulatory approval of the U.S. government.
Crypto is built on the premise of decentralization, and if the government issues a competing currency, crypto may have a short life span.
The Argument Against Cryptocurrency Dying
Every time there is a correction in the cryptocurrency market, there are a chorus of “crypto is dead.” articles that come out. All of them have some specific reason that “this time is different,” but as a whole, the cryptocurrency market keeps growing.
With massive institutional adoption, more and more real-world use cases, and consistent growth over time, cryptocurrency is not dying. In fact, it is continuing to grow at a rapid pace.
1. Institutional Adoption – Large Corporations Are Using Crypto
When Elon Musk announced that Tesla had bought $1.5 billion worth of Bitcoin in February 2021, it was a massive boon to the crypto market, but also a statement about the staying power of cryptocurrency. Although there had been some institutional adoption over the years, a consumer-focused company like Tesla placing such a massive bet on Bitcoin paved the way for others to join.
In fact, there is a running list of public companies that own Bitcoin, and many private companies and governments that have placed Bitcoin on their balance sheet.
Institutions are not only investing in Bitcoin and Ethereum, but many companies are finding ways to allow consumers and businesses to purchase products using cryptocurrency as well. Many large companies have created payment gateways to allow users to “pay with Bitcoin” or other crypto. Companies such as Microsoft, AT&T, and even the Dallas Mavericks NBA team allow users to make purchases with cryptocurrency.
Now some large financial firms, such as Morgan Stanley, are offering access to Bitcoin ETFs for wealth management clients, allowing them to allocate a portion of their investment portfolios to cryptocurrency.
With more and more institutions finding a way to adopt Bitcoin and other cryptocurrencies, cryptocurrency is not going away any time soon.
2. Consistent Market Growth – More Crypto Use Every Year
Although the cryptocurrency market has seen massive boom-and-bust cycles every few years, the overall trajectory of the market has shown consistent growth over time. From the first cryptocurrency “bull run” in 2011 to the latest 50% correction in 2022, the price of Bitcoin has risen from $0.30 to over $30,000.
The total market capitalization of all crypto projects has also risen, eclipsing the $100 billion mark in 2020, and then reaching over $2.5 trillion just over a year later in 2021.
With over 2,500% growth in the span of less than two years, it is evident that cryptocurrency is not dying. In fact, it is growing faster than most asset classes, and continues to innovate and evolve.
Overall, cryptocurrency is in hyper-growth mode, even with the massive swings in price and market cap. As a brand new asset class, most retail investors do not own or trade crypto, paving the way for more growth in the future as later adopters finally get involved.
3. Real World Utility – There Is a Need for Cryptocurrency
You can buy a Tesla with Bitcoin. You can make everyday purchases with a Coinbase credit card. You can even pay your cellphone bill with AT&T using Bitcoin. As a payment system, Bitcoin and other cryptocurrencies are now offering the real-world utility of a currency.
In addition to making payments, blockchain technology has created a new way to sell artwork and other goods with non-fungible tokens (NFTs). Artists can sell unique artwork that users can purchase with cryptocurrency, and ownership is cryptographically verified on the blockchain, helping users avoid fraud and counterfeit pieces. Music artists are even selling portions of their music as NFTs, allowing investors to earn royalties as part-owners of the songs.
Payment gateways like Coinbase and BitPay now allow more and more companies to accept crypto as payment as a simple add-on to their website. This simplifies making purchases with your crypto holdings, with no additional overhead to the company selling the product.
There are even crypto-backed loans available at very low interest rates, allowing investors to keep their crypto assets, and borrow cash against the balance. This helps them avoid paying capital gains taxes from the sale of their crypto holdings, as well as access low-cost capital quickly.
Overall, the cryptocurrency industry is not dying, but is a catalyst for innovation and growth of all industries, not just the financial sector.
Verdict: No, Cryptocurrency is Not Dying
The massive volatility of crypto, the threat of government regulation, and the implementation of CBDCs could hinder the progress that Bitcoin has built over the past decade. There are many hurdles for cryptocurrency to overcome to continue growing as a viable asset.
But this is nothing new for crypto. Since Bitcoin launched, more than 400 pieces have been published declaring the end of Bitcoin and cryptocurrency, including a Forbes article as early as June 2011. Not only has Bitcoin not died in that time, it has grown at an astronomical pace. It was the best performing asset of the 2010s, outpacing tech stocks, gold, and real estate.
So, no, cryptocurrency is not dying. Are there bad actors in the space? Yes. Is there massive volatility in its value? For sure. Is Bitcoin really confusing for new investors? Yeah, sometimes.
But is cryptocurrency coming to a screeching halt because “this time is different?”
For all the media coverage cryptocurrency has received over the past few years, it is easy to forget that it is still in its infancy. Bitcoin was launched in 2009, and cryptocurrency as an asset class is barely 10 years old.
Although it may feel like the Wild West at times for investors, the fact that over $1 trillion dollars are still in the market after multiple massive corrections shows investors are confident in the future of cryptocurrency. Crypto companies continue to innovate and Bitcoin is quickly becoming one of the most held stores of value assets in the world.
Crypto is big enough to warrant government consideration for regulatory purposes, but also to ensure its continued innovation that has fueled business and capital growth across multiple sectors in the market.
Cryptocurrency is not dying, and its biggest days are yet to come.