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04-Dec-2021

Cryptocurrency Trend – what to expect in 2022
Cryptocurrency Trend – what to expect in 2022

The digitization of our day-to-day lives has begun, and not to mention, the speed at which the digital era is unfolding at its best. Digitization of money too is slowing ascending to normalcy all around the globe.

Covid – 19 pandemic caused an economic shock to the world in 2020, second after the financial crisis of 2008. Despite the pandemic affecting every financial market, cryptocurrencies have shown remarkable resiliency.

However, 2021 has been important to crypto markets and blockchain. The pandemic has given boost to use of digital payments. The fast increase in the digitization and internet, have created a favorable environment for digital currency.

Cryptocurrency – explained…

Cryptocurrency – the word, that is buzzing, but is still a vague term for many. Simply put, cryptocurrency is a digital currency created and managed through cryptography – an advanced encryption technique. It is a digital form of currency used to buy goods and services. It does not have a physical form.

To secure online transactions it uses an online ledger, secured with strong cryptography. A technology called blockchain is used in cryptocurrency, which is - a decentralized technology that records and manages transactions, without personal identifying factors. Unlike other forms of digital investments and currency, these are not backed by a regulatory power, or any traditional lending institution. The transactions made are highly confidential, irrespective of the transaction size.  The top reason for the popularity of this technology is the security it provides.

History -

Cryptocurrency once an academic term formed its real existence in 2009, with the creation of – ‘Bitcoin’, which is the most popular cryptocurrency till date. Bitcoin is the world’s first decentralized digital currency.  A large number of companies have issued their unique currencies, known as tokens, which can be specifically used to trade for the goods and services provided by the company.

According to market research, there are more than 14,500 cryptocurrencies traded publicly, and they continue to proliferate. The total value of Bitcoin, which is the most popular digital currency, is marked at about $1.1 trillion!

For a long time Bitcoin stayed in the shadows, however, in 2017 it started gaining popularity, sending its market price high during that year. By March 2020, the pandemic hit and the value of Bitcoin saw a steep descent. However, it bounced back to its high yet again soon. The highest value of all cryptocurrencies was above $2.9 trillion in November 2021.

Know the hype – why is cryptocurrency popular?

While the digital world is fascinating in many ways, it sure has more reasons for cryptocurrencies and their popularity. Let us take a look…

Its supporters hail cryptocurrency as the currency of the future. Due to its increasing value, many are investing in it at an early stage before their value skyrockets. Some people are only interested in it, as it has high value. Most people do not look up to it as a long-term form of digital currency to move money. Many like the fact that central banks do not manage and control the supply of money in cryptocurrency. Since with time, these banks tend to decrease value of money citing inflation.

Cryptocurrencies have a strong security. Many supporters like blockchain technology, which has a decentralized processing and recording system. These are believed to be safer than other conventional digital payment systems.

Is cryptocurrency a safe choice?

Throughout the history of cryptocurrency, it has seen a lot of instability. The value graph for bitcoin and other digital currencies has witnessed frequent lows and highs. For many who envision cryptocurrency as the currency of the future must note that, any currency needs stability for consumers and merchants to determine a fair price for goods.  However, the volatile trade trends of cryptocurrency create a conundrum. It is the volatility that has led to polarizing views on whether investing in crypto coins is a safe bet or not. Considering bitcoin will be of high value in the coming future, it can be assumed that fewer people will use them as viable currency now, thereby reducing its circulation and spending.

Should you invest in cryptocurrency?

Whether you invest in cryptocurrency can be determined by your core objectives and the risks you are willing to tolerate. Experts suggest investing in crypto assets is risky but also has a profit potential. Let us look at the benefits and risks:

Summing the Benefits-

  • Cryptocurrency is the biggest revolution of the digital age. It is a fast and inexpensive option.
  • One of the biggest advantages undoubtedly is the fact that it cannot be controlled or regulated by a third party, regulator or any other institution. The quintessentially decentralized trading of cryptocurrency gives you control over your assets. It gives the freedom of availing maximum profits, from the usual exchange rates.
  • Their popularity has grown due to their transparency, supported by an open source and technology that can be verified publicly.
  • The transfer of funds is quick, simple and can be done using a smart phone or other device like a computer.
  • It is a cost effective option especially for sending money overseas, as there are almost negligible transaction fees ( in most cases) to be paid by user. Conventional modes of digital payments often charge transaction fees.
  • With very few barriers to cross, cryptocurrency transactions process at a very fast speed, irrespective of a domestic or international transaction. They have lower entry barriers, and are free to join and have high usability. Users do not require submitting or disclosing any address, identity or proof of income.
  • Flexibility in trading is also one of the key factors contributing to the rise in cryptocurrency trading. Investors can trade during any time of the day.
  • It is an excellent option for people looking for long-term investments, according to some investors. Despite the volatile markets and fluctuations in the value for this digital currency, investments in the crypto market are expected to be beneficial in the long run.
  • Cryptocurrency is more appealing to investors, who were/are unable to establish a long-term investment plan with traditional methods. People of all age groups, and all income sizes, prefer investing in cryptocurrency due to its increasing value.
  • This currency uses block chain technology and hence is much difficult to counterfeit, than traditional currency.

Assessing the Risks-

  • While most stock exchanges seldom have  the risk of being hacked into and stolen, crypto exchanges are more vulnerable to hacking and be the target for other illegal or criminal activities. Many investors have reported losses after their digital currency was stolen due to security breaches.
  • Storing cryptocurrencies is rather difficult. Most people do not prefer to keep their digital assets on exchange, due to the threat of being hacked into and stolen.
  • There is fierce competition in blockchain projects, so there is no guarantee that crypto project investment will be successful. Many a times the project is a mere fraud, and nothing more. Of the thousands of projects, only a few may flourish.
  •  Some cryptocurrency investors prefer ‘cold storage’ options like hardware or paper wallets. However, this option still is challenging with the possibility of losing your private key, which blocks access to your currency. 
  • It is true that cryptocurrency is developed with cutting-edge technology. However, even then, there are chances that regulators will crack down the crypto industry, if they view cryptocurrency more as a threat, and less as a technological progress. Most of this technology is still in the development stage and is not proven extensively in the the real-world scenarios.
  • Mining of cryptocurrencies has increased and this has resulted in significant increase in the consumption of energy. Mining coins needs a lot of energy and high-end technology and computation power. According to a report, the power consumption of a bitcoin network in 2017, was higher than Ireland. This energy load may affect power consumption, production, global warming, and power prices, etc.
  • Cryptocurrency is decentralized; however, the power is still in the hands of their creators and organizations that control their flow and amount. There is always a risk of manipulation of its price.
  • In case of a dispute within both parties involved in a transaction, or if the currency is transferred to a wrong wallet or address, the coin cannot be retrieved. With a no refund or cancellation policy, the risk of cheating looms large in cryptocurrency.

Types of Cryptocurrencies

Cryptocurrencies are commonly known as Bitcoin and Altcoin. The bitcoin was first decentralized crypto, created in 2009. Currencies other than Bitcoin are called Altcoin.

  1. Bitcoin – It is the first and most popular cryptocurrency. It is widely popular, perhaps because of the advantage of being the first one on the market. It is viewed as a good option for investment by many.
  2. Ethereum – This is the second most popular cryptocurrency. Some investors believe this will be the next Bitcoin. Ethereum is called the real-world utility. The block chain for this crypto supports block contracts, and can be used in a variety of applications. It is more suited to create NFT’s, also known as non-fungible tokens.
  3. Tether – It is the 4th most popular cryptocurrency, however, considering the stability of this coin, it takes the no. 1 position among all cryptos. The value of all stable coins is attached to other assets; however, the value of Tether is attached to the U.S dollar.
  4. Binance– This coin operates the biggest exchange of cryptocurrency in the world. It is the 3rd most popular digital currency. Binance reduces the supply of digital coins each quarter, based on trading volume, which is aimed to grow the value of this coin.
  5. Solana – Many investors have invested in Solana, as an alternative to Ethereum. It is faster and also has lower transaction fees compared to Ethereum.
  6. Litecoin (LTC) - It has always followed Bitcoin, and now is considered as silver to the gold of Bitcoin. Launched in 2011, it has a faster block generation rate resulting in faster transaction confirmations. It is an open source global payment network that uses ‘scrypt’ as proof of work.
  7. Polkadot (DOT) – This cryptocurrency is also called the alternative of Ethereum.  It creates not only decentralized applications but developers can also create their individual blockchain, along with existing security. Polkadot aims at helping people build new block chains and integrating them with one another.

Along with the above mentioned, there are many types of cryptocurrencies in the market. Cardano, Stellar, Dogecoin, Monero, Avalanche, TRON, Zcash, EOS, Neo, Dash, USD coin, are to name a popular few. Despite all the competition, Bitcoin still rules the crypto market, with its usage and economic value.

What to expect –

  • Bitcoin has seen an all-time high, other digital currencies have also done remarkably well this year, and experts believe they have the potential for big impact on the global industry. Despite the pandemic, people’s interest in Cryptocurrency has skyrocketed.
  • Cryptocurrency may witness regulatory actions. Many countries have now started integrating cryptocurrencies in their economy.
  • In India too, cryptocurrency regulation has been the ‘the talk’, every now and then. There has not been any official statement, but experts believe non-regulation of crypto, will give rise to catastrophic dealings in the black market.
  •  Indian investors have positive hopes for regulating digital currencies and their transactions.
  • Cryptocurrencies and their future fairly depend on the way regulatory frameworks are developed. As different countries approach this innovation in their own way, the regulatory environment remains unpredictable. 

Cryptocurrency – a controversial trend or the future of global finance?

The Indian government recently announced considering the regulation of digital currencies and a close watch on its market. The winter session of the Parliament is likely to see the introduction of a bill to regulate cryptocurrencies. Reports of a ban on Cryptocurrency for transactions or payments have surfaced. The government could however allow it to be held as assets, bonds, or gold. The Central Bank in India is looking at issuing its own digital currency in the market.

Prime Minister of India, Mr. Narendra Modi, has called for all nations to work together on streamlining cryptocurrency. Though India has grown its digital footprint; unregulated crypto markets are a major concern, that may become avenues for black markets, illegal trade, money laundering and terror financing.

To sum it up, experts suggest cryptocurrency is still new and abstract, with very little history to calculate predictions. Some nations have included this technological revolution in their economy and slowly are beginning to legalize transactions in crypto, however, many countries on the other hand, think cryptocurrency needs to be regulated, to prevent financial crisis in the future.

Many investors support the thought of sticking to conventional investment options, especially for long-term wealth. Cryptocurrency is highly volatile, and hence experts advise to invest, only what you are prepared to lose.

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