Investors often attribute the word “volatility” to cryptocurrency. In their defense, the cadence of the crypto market has always been unpredictable, more so than conventional trading channels like stocks, bonds, and commodities. And then there is the dreadful talk of “the bubble,” where market analysts expect cryptocurrencies to burst for good. After all, when something seems too good to be true, it usually is — according to experts. So, where is the crypto trend going?
While there have been recent shocks in the crypto world, the decentralized financial solution seems to hold on rather well despite the storm. There may be setbacks that transform the playing field (e.g., stringent governmental policies), but crypto seems more stable than some might think.
On the contrary, recent challenges to the system may provide fresh opportunities for crypto investors to re-evaluate their portfolios for the next big break. If history is an accurate indication of the future, cryptocurrencies usually bounce back stronger than ever, paying huge dividends to savvy investors.
The Situation in China
The government of China, the world’s largest crypto mining country, suggested a crackdown on all cryptocurrency practices nationwide. According to the University of Cambridge, China contributes 65% of Bitcoin’s hashrate (mining speed). The shocking news in May resulted in a ripple effect among miners, plunging Bitcoin value by 30% at close to $30,000 per coin.
However, despite harsh governmental warnings, China has not officially issued a ban on crypto mining. Additionally, Bitcoin will likely continue to run uninterrupted if a ban takes precedence. According to recent news reports, many crypto miners in China have taken a proactive approach known as “the great mining migration.”
The exodus involves miners selling their mining equipment in bulk to foreign parties and shifting their operations to neighboring Kazakhstan, Eastern Europe, and Texas. Texas has become a popular target due to its abundance of solar and wind energy, ideal for large-scale data mining processes.
While Chinese miners may scramble in search of new locations, leading to multiple offline servers and a dip in Bitcoin computations, it will be a transitory process. Investors can look forward to an uptick as they settle down. At the same time, global redistribution could result in a balance of crypto power control across nations and lower volatility in the long term.
The American Situation
The Biden administration has been recently cracking down on cryptocurrency practices in the United States. Specifically, the government has implemented additional measures against the lack of transparency and tax evasion. As such, the president and U.S. Department of the Treasury have come up with stricter policies and resources required by the IRS in managing crypto assets.
These recent changes include the need for businesses to report received crypto assets that exceed a fair market value of $10,000 to the IRS. While additional regulations may adversely affect some cryptocurrency investors, as seen in a reverse crypto trend during the Treasury announcement, the recent laws may prove beneficial to general trading.
Gary Gensler, the newly appointed head of the SEC, is a renowned specialist in cryptocurrency, and many experts believe his policies will protect investors and prevent market manipulation in the long term. Although the strict Treasury policies may cause some immediate headline risks, a well-regulated process will add legitimacy to crypto trading and safeguard ongoing transactions.
Crypto Considerations
While timing the market is always a challenge, investors should maintain a long-term plan. The volatility of crypto warrants prolonged monitoring of the market, where investors can better interpret the average highs and lows of the crypto trend. By reducing the volatility, investors can engage in fewer risks with their portfolios.
Aside from cryptocurrency leader Bitcoin, there are three other currencies that investors may consider monitoring in the upcoming months.
Ethereum – The primary currency for NFTs and DeFi platforms. Ethereum prices rose by 2.62% at the time of this writing and hold a market value of $225.52 billion.
Tether – A cryptocurrency pegged to the USD, making it easier for investor transactions. The link with a physical currency makes the cryptocurrency less volatile than the others on the market. Tether’s market capitalization continues to grow, rising by 190% in 2021.
Cardano – The cryptocurrency runs on a proof-of-stake protocol designed for smart contract developments. Some investors favor the cryptocurrency for its energy efficiency (reportedly 20,000 times more sustainable than Bitcoin’s mining method), potentially a major game-changer in the high-energy crypto landscape.
Closing Thoughts
While investors shouldn’t invest their life savings in cryptocurrency (as with any investment), it is still a bankable investment vehicle that has proven itself capable for more than a decade. As with any investment, a careful watch over market movements remains key to a profitable portfolio.
There may be short-term fears and concerns involved with cryptocurrency, but this is an expected trend for a decentralized financial protocol. Mainstream society has long been acquainted with the concept of traditional financial institutions, and a deviation from the rule leads to uncertainty — especially when profits multiply at an unprecedented rate.
However, the only real challenge with cryptocurrency lies in maintaining transparency among users and establishing regulatory practices that deter fraud by protecting legitimate investors.
If anything, cryptocurrencies like Bitcoin are reaching all-time high values in recent times as larger investors saturate the market, as seen in January (around the $30,000 mark), prior to China’s crackdown.
More institutional investors are investing in cryptocurrency, and many international names continue to recognize and accept cryptocurrency as a payment method. These companies include Microsoft, Home Depot, and Twitch, which provide continuous legitimacy to cryptocurrencies.
Once the regulatory policies have passed, and there’s greater accountability for crypto users, the only question that remains is “what’s the next breakthrough for crypto?”
