Crypto’s uncertain future
February 3, 2022
For those who do not know, cryptocurrency, also referred to as crypto, is a decentralized digital currency. Over the past several years, some countries have begun to restrict the use of cryptocurrency. According to Elena Fabrichnaya and Alexander Marrow, who write for Reuters, on Thursday, January 20, Russia’s central bank proposed a ban on the mining and use of crypto on Russian territory.
Russia is just one of many countries in the process of heavily regulating or outright banning crypto. Forbes’ writer Kenneth Rapoza explains that crypto is already fully banned in nine countries. One of these countries is China. The highly centralized Chinese government has a long history of being strongly against the employment of anything decentralized, so it is to no surprise that they were the first country to fully ban the use of crypto.
Just like China, Russia is not a fan of a decentralized currency. Highly centralized countries view crypto as a threat to their financial stability as well as a threat to their citizens’ wellbeing, as crypto has a very highly volatile nature. Furthermore, the cost of mining for crypto is very high. Mining for crypto consumes large quantities of electricity. The Bank of Russia believes that the best solution to putting a stop to this is by outright banning crypto mining.
Surprisingly, the regulation and banning of crypto have yet to hinder the value of crypto in a significant way. Crypto continues to thrive despite all of these countries placing bans on it. In fact, crypto being more regulated could actually increase its value. The more that crypto is regulated, the more validity it gives to its worth. It also helps ensure that the crypto being bought is not just some scam.
The value of crypto is reflected by the belief of investors in it. For instance, when the eccentric CEO of Tesla, Elon Musk, tweeted that “I will eat a happy meal on tv if @McDonald’s accepts Dogecoin”, the price of DogeCoin immediately spiked by 8 percent. DogeCoin is a type of crypto that started as a joke, but has now taken on serious value. The intense reaction to the tweet of the CEO highlights just how volatile crypto is in nature.
I will eat a happy meal on tv if @McDonald’s accepts Dogecoin
— Elon Musk
There is a long history of Musk’s tweets and actions impacting the value of crypto in a large way. For instance, when Musk first announced that Tesla would accept Bitcoin as payment for its products, the price of Bitcoin soared, but when he said that Tesla would no longer accept Bitcoin as payment, citing environmental concerns, the price of bitcoin plummeted.
When investing in crypto, like any stock, everyone looks to buy low then sell high. One common occurrence in crypto is bubbles. Bubbles in crypto are when the price of the stock continues to rise out of speculation that it will keep growing and people keep investing based on this belief that it will continue to grow. During bubbles, it often seems as though it will go on forever because the price never seems to stop increasing. But like with any bubble, it eventually “pops”, meaning the stock experiences an extremely large hit in its value.
Crypto is famous for having bubbles. The popular cryptocurrency Bitcoin experiences bubbles of an extreme magnitude. Take the price of Bitcoin throughout 2021 for example. It was $32,149.90 on January 1, 2021, then by March 12, 2021, it had grown to $61,283.80, but shortly after this the bubble popped sending the price of Bitcoin down to $32,275.10 by June 25, 2021. Then again, Bitcoin steadily grew until it reached $64,400.00 on November 12, 2021. Once again, the bubble burst, sending the value back down to $35,070.10 as of January 21, 2022.
While the prospect of doubling an investment through Bitcoin in just a few months is very appealing, timing the purchasing and selling at the right time is very difficult and would require a lot of luck. Bitcoin is very high risk, high reward. Even though a well-timed investment in Bitcoin reaps large rewards quickly, a poorly timed one will leave a very rough-looking bank account.
Crypto’s new regulations and its high volatility will be important to keep a close eye on. In the ever-changing world of crypto, it is very likely that large gains and losses in value will occur on digital currency.