What is that one thing that you would change if you could go back in time? Well, a lot of us might want to go back in time and purchase Bitcoin. For who knew, a decade later, all that conviction would pay off like this. Talking of conviction, do you know CZ, founder of Binance, sold his house to buy Bitcoin back in 2013? Later, he also quit his job to work on Binance. Is it pure conviction and risk appetite, or did CZ have some insights about the future?
Turns out that it is a combination of both. So while we would leave the risk-taking ability to your fine sense of judgment, we would give you a brief overview of what is the future of crypto in the next 5 years. We will try to take a shot at this by analyzing some current trends in cryptocurrency.
Impact of Crypto Regulation on Investors
With the current outlook, it seems that regulation will positively impact the cryptoverse. Although the industry experts are split on this opinion, time will show its true impact.
If the regulations look far-fetched, at least the fear of banning cryptocurrencies should stop looming on the retail investors.
Pros of crypto regulation
No matter which side you are on, regulating the cryptocurrency space has some clear benefits. Almost everyone agrees that regulation will have a positive impact on crypto. Let us find out how:
We’ll not go back in time to bring this point home. Recently Do Kwon’s Terra ecosystem collapsed like a house of cards. Investors lost about $50B in this event. And while it pulled the entire market down, the ripple effects were also faced by Celsius, 3AC and many others. These platforms enabled crypto borrowing and lending for its users, providing high yields on stablecoins. All of them had invested in UST (the collapsed stablecoin of Terra).
Celsius once ran a contest called ‘My Celsius Story’ where people shared their stories of investing in Celsius. And some participants mentioned that they put their life savings, retirement funds, children’s education funds etc., in Celsius to earn that juicy 9% interest. It is painful to imagine the fate of these individuals after Celsius went bankrupt.
The bigger question here is who is accountable for all this? There has to be some sort of insurance to safeguard retail investors against such events. Guess what? Regulations might just enable that for you.
Markets need an excuse to tumble. And when the government bodies issue statements around cryptocurrency, the roller coaster ride just worsens. If there were regulations in place, investors would take a smarter, thought-through decision instead of buying and selling their assets in fear or greed.
Governments across the globe are against the speculation of crypto assets. Once the regulations are in place, investors would automatically focus more on fundamentals.
3. Wider adoption
And if people know what they are getting into is regulated by the state, they would happily diversify. Currently, the masses do not ape in crypto because they are unsure about the government’s stance. Once it is regulated, everyone would take it seriously.
4. Better forensics
Due to lack of regulation, crime investigation agencies are not sure how to catch the frauds and crimes happening under the veil of cryptocurrency. If the government lays down rules for treating these assets, these agencies could invest in on-chain analytics to kill the illicit use case of crypto, no matter how small it is.
Cons of crypto regulation
While regulations would have an overall benefit in the long haul, they could be quite painful in the short term. Here are some cons of crypto regulations:
1. Flexibility and anonymity
If regulators across the board start tightening the noose, we might experience a subtle lack of flexibility. The entire idea of crypto revolves around document-less, KYC-free, quick transactions. With the government wanting to track these transactions, you can say goodbye to your pseudo-identity.
2. Spirit of decentralization
The whole idea of introducing Bitcoin, the OG cryptocurrency, was to keep it state-proof. Bitcoin is often considered as the hedge against inflation caused by money printing. Regulations might be perceived as an attempt to curtail the competition it poses to fiat.
How Can Money Laundering Be Prevented?
If the industry can solve this problem, governments are highly likely to budge in. Some ways to do this could be:
Anonymity could be a strong use case for cryptocurrencies. However, there should be no objection to staying on the right side of the law. KYC-compliant blockchains like HyFi can solve this problem.
Only regulated licensed players should be allowed to operate in the ecosystem. They should be held accountable for any illicit activity on their platform.
Stricter regulations and enforcement can play a pivotal role in keeping criminals at bay.
What are Crypto ETFs, and Why are they Considered Safer?
Before we get into that, let us understand what an ETF is. ETF stands for exchange-traded fund. This is a basket of assets that generally follows an index. Doesn’t help much, right? Ok, let us retry with an example.
Imagine that you are a noob at nitpicking stocks. So you plan to invest in an index fund (a fund that tracks indices like Sensex, NASDAQ etc.). But mutual funds can do that as well? Yes. But unlike mutual funds, you can trade ETFs on the stock exchange. Just like any regular stock.
Now they are obviously safer as compared to hand-picking stocks. Why? Because they follow an index. This means that rather than betting on a single share, you are betting on a theme. This theme could be the top 10 stocks by market cap, pharmacy, electric vehicle etc. Also, the cost associated with ETFs is lower compared to mutual funds.
Now it is easy to transpose this concept to the cryptocurrency realm. Instead of picking a cryptocurrency, you may decide to bet on the Bitcoin index (Bitcoin and all its forks like BSV, BTC, LTC etc.).
Currently, Bitwise and Grayscale are two fund houses that have filed an application with the SEC for the approval of spot ETFs. However, the SEC rejected these applications on 6th July owing to the fact that the market size is not enough to launch an ETF. Secondly, they claim that their market manipulation concerns are not yet addressed. Grayscale has confirmed that they have all the ‘post-ruling scenarios’ ready.
Pros of crypto ETF approval
If at all this ETF gets approved, it will open the door for innumerable benefits for the industry and investors alike.
1. Hassle-free exposure
The biggest challenge when investing in cryptocurrencies is setting up an account on a centralized exchange, KYC and eventually investing. If you wish to take the decentralized route, it is even more painful, as setting up a wallet and withdrawing funds to it is even more difficult.
To top it all, an average joe is quite likely to overlook the risks of storing their funds in wallets/centralized exchanges. ETFs, overcome these barriers seamlessly. All you gotta do is purchase a unit of ETF off the stock market. That’s all.
2. Currency conversion
And because you are taking the direct route, you don’t have to play the complicated game of moving your funds to the exchange/wallet and then purchase a stablecoin like USDT/USDC to start buying your favorite cryptocurrencies.
3. Low cost
This eventually will ensure a lower cost of exposure. If you are purchasing crypto in the decentralized realm, you might end up doing multiple transactions and hence paying gas fees for each one of them. With ETFs, you can kiss this mess goodbye.
4. Regulated access to crypto
Currently, crypto exposure comes at a risk of being liquidated due to systemic risks of unregulated protocols. As ETFs are regulated, you can be assured that the government has your back.
Cons of crypto ETF approval
As prudent investors, let us have a 360-degree view of the entire situation and explore some of the downsides of Crypto ETFs.
The ethos of web3 revolves around true ownership of your assets. Ownership that is so robust that no one else can tamper with your assets. However, ETFs defeat that purpose. While regulations are in place, if something were to happen to your funds, you risk losing your entire corpus.
2. Tracking error:
ETFs are prone to tracking errors as well. This means that actual price movement might not be reflected in your portfolio. Say BTC jumps by 50%; you may not reap the complete benefit of it. In a bid to diversify, ETFs invest in an index and some other assets, which causes this tracking error.
3. Management fee:
Like any fund, ETFs charge a management fee to deploy your funds.
How Close is Crypto to Institutional Adoption
Institutional adoption is the key to success for any asset class out there. Stock markets fluctuate violently whenever institutions buy or sell. Therefore, it is safe to assume that institutional buying is a backbone for any asset to flourish.
As of June 2022, 6.47% of all Bitcoin that will ever exist is held by institutions, a broad category that includes ETFs like VanEck in Canada and sovereign governments like El Salvador. According to EY, nearly a quarter of fund managers expect to increase their exposure to crypto assets.
Institutional investment is also a function of regulatory clarity. That said, the adoption process is always gradual, just like every other asset.
Pros of crypto adoption
So we do realize that adoption is good in general. But what are some of the key benefits? Read on!
1. Value appreciation
Yup. Unlike retail investors, institutions bring in big money. They have the potential to pump hundreds of dollars into the ecosystem at regular intervals. This means we can expect a surge in the price when these institutions join the party.
2. Targeting the next million
With institutions buying into cryptocurrency, a larger set of retail audiences becomes optimistic. Think of it like a seal of approval about the future of an asset. As a result, many new people would ape in this new asset class.
Institutions generally have professional wealth managers who do not buy into FOMO or panic selling. Therefore, during turbulent times, you can expect a lot less volatility.
Cons of crypto adoption
A lot of crypto bros are not happy with institutional buying. This is mainly because the entire ethos of web3 and democratization is affected. So here are a few cons of institutional adoption of crypto:
1. Market manipulation
Institutions often run behind that alpha which would give them greater returns vis-à-vis others. Since blockchains are extremely transparent, it opens room for some market manipulation by big players. This leaves retail investors at risk of losing money.
2. Over dependence
The flipside of big money coming is exactly what you just guessed. Yes, if these players start moving out, markets will start tumbling faster than ever.
Cryptocurrency is a highly risky asset class. However, the returns are in proportion to that. In the past, Bitcoin has outperformed every asset class to have ever existed. When it comes to the future, we need to evaluate what big players think.
As per BCG, one of the world’s largest strategy consultancy, cryptocurrency market capitalization is likely to grow 5x by 2030. This means you are in for a lot of returns if you make your bets wisely.
Similarly, JP Morgan predicts Metaverse could be a one trillion dollar economy.
Let us try to take an educated guess at Bitcoin. Considering its positioning as digital Gold, it should ideally match the market cap of Gold in the upcoming years. The current market cap of Gold is approximately $8T. If BTC matches that, with a 21M cap, each piece could be priced at 400K. That is an upside of 200x from the current price.
What I am trying to say is that if you believe in it, hold back. Early adopters are always rewarded exponentially. You can too become an early adopter by investing in crypto via Mudrex.
1. Which cryptocurrency has the best future?
Although predicting the exact future might be extremely difficult for anyone, the network effects and community around Bitcoin and Ethereum are great. This is why these two blue-chip cryptos are likely to dominate the industry.
2. Which coin is the next Bitcoin?
Bitcoin, by far, has the strongest support from the community. For any new entrant in the market, it would take significant time to achieve that status. However, some enthusiasts would argue that Ethereum might overtake Bitcoin in market cap. This is often referred to as ‘flippening.’
3. Will crypto mining exist in 5 years?
Bitcoin may never move away from Proof of Work. Therefore, mining would definitely be there as long as Bitcoin continues to operate on PoW.
4. What will be the implications for long-term investors?
Long-term investors should allocate a certain share of their portfolio to cryptocurrency as per the risk appetite. Long-term perspectives for investors are considered really positive.